One of the most transformative social media platforms is Facebook.
When it launched on the internet, web users found a new way to stay in contact with friends and connect with old friends.
It became a place where people could discuss their favorite hobbies, post pictures of their vacations, and keep people updated about their lives.
Like any business venture, Facebook originally started as a private company.
Along with Mark Zuckerberg, a few other managers and early investors owned the company.
It meant they were able to make rapid decisions about Facebook’s future without worrying about their commitments to public shareholders.
However, considering the website has been active since 2004, you may wonder if it has since become public.
Here’s what you need to know about whether Facebook is a private or public company.
Is Facebook A Private Company?
No, Facebook is no longer a private company.
In 2012, Facebook had its Initial Public Offering, or IPO, at $38 a share.
An IPO is when a private company sells shares of its company to the public on the stock market.
It allowed average investors the chance to own a piece of Facebook.
In normal situations, this allows the shareholders a vote in the company on certain matters.
They get some say in how the company moves forward.
This is to help them protect their investments and earn money through dividends when the company turns a profit.
Although Facebook is a public company, it still acts as a private company.
There’s a reason for that.
Why Facebook Is Still A Private Company
Facebook’s situation is a little different from that of most public companies.
Although it is a public company, most of the company is still under the ownership of a private individual.
Mark Zuckerberg owns the most shares in the company on his own and through agreements that he has with early investors.
He also structured the shares in such a way that, even if he were to own fewer shares, he’d still have a lot of control over the business.
That’s because he split the shares into two different types.
Stock A is what the average investors bought when Facebook underwent its IPO.
Each stock A gave those investors a voting power of five points.
Zuckerberg and early investors own stock B.
This type of stock gives them a voting power of 10 points.
Because Zuckerberg’s votes mean more, he essentially still has full control over how the business operates and the changes it makes.
This type of structured stock system isn’t new.
There are plenty of other companies that do something similar.
Google, another tech giant, is one such example.
This type of structured stock system was developed as a result of entrepreneurs who wanted to maintain control of their company and still gain the benefits of crowdfunding.
It kept them from having to sell their own shares which could have resulted in their termination at the company that they helped build.
Something like this happened in Apple’s early history.
In an effort to gain more funding, they sold their own shares and ended up losing a great deal of control over their own company.
Entrepreneurs, especially those in Silicon Valley, developed a new strategy that would allow them to keep control of their businesses while still reaping the benefits of trading on the stock market.
How Does Zuckerberg Keep His Stock’s Power When Early Investors Sell?
One problem that you may notice in a structured stock system is what happens when an early investor sells their stock.
When Facebook announced that it intended to have its IPO, it was inevitable that some of the early investors planned on selling.
One would think that the average public investor who bought those shares would then receive 10 points of voting power.
That isn’t the case.
Zuckerberg wrote a specific clause stating that when an investor sells their stock, it reverts from a stock B to a stock A.
This means that the investor buying a stock B from an early investor is actually buying a stock A.
They’ll only have five points of voting power in the company, regardless.
In this way, Zuckerberg is able to keep control of Facebook.
Even if early investors sell, his own private shares, which are worth 10 points of voting power each, are still more potent than the public’s shares.
There’s no way for them to get their hands on stock B shares.
Zuckerberg keeps control of his company even after an early investor sells because of the clause that converts their share from a stock B to a stock A after the sale.
Can Mark Zuckerberg Choose His Own Successor?
Another important difference between most public companies and Facebook is the choosing of a successor.
In most cases, a publicly-traded company votes on who the next CEO is going to be.
The board will discuss various nominees, then everyone votes on this.
This allows the general shareholders the chance to help push the company in the direction they believe is the best.
However, the shareholders who own Facebook will notice that they don’t have this power.
Another clause that Zuckerberg wrote is that he can choose his own successor.
When he feels like stepping down as CEO of Facebook, then he has the right to choose the one who will take his place.
This is a great thing for any entrepreneur.
Zuckerberg can go through the candidates that interest him and choose the one that he feels will stay true to the company’s mission.
For shareholders, this isn’t as great a thing.
If the person in charge has flawed thinking, for example, then they may appoint someone detrimental to the company.
As a result, the company starts to fail, and they lose their money.
They don’t have a say in the matter.
This is another aspect which demonstrates that, although Facebook is a public company, many of its aspects are still private.
Why Does Facebook Being Mostly Private Matter?
Considering that Facebook is on the stock market, you may wonder why it matters if Zuckerberg maintains control of the company.
Here are a few reasons it matters that Facebook is mostly private.
One of the biggest reasons it matters that Facebook is mostly private despite being a public company is the risk to shareholders.
When a company does an IPO, it’s essentially giving up small portions of ownership to the general public.
The company receives crowdfunding that allows it to invest in itself and earn higher profits.
It also means it is beholden to its shareholders.
If the shareholders aren’t pleased by the company’s performance, then they can choose to sell their shares.
This not only cuts off their investments, but it also means the company might lose money.
This can sometimes be enough to kill the company.
As with any investment venture, there’s always some risk on the part of the investor.
As an incentive to take that risk, they receive some amount of controlling interest in a company.
Due to Facebook’s unique stock structure, its shareholders don’t have nearly enough say in its operations.
Even if all the shareholders agreed on a vote, Zuckerberg still owns a considerable number of shares that enable him to veto the vote.
This means that shareholders are essentially held hostage since they’re unable to voice their opinions.
They have to rely on Zuckerberg to make the right decisions for them.
It’s riskier for them.
2. Caught Up In Scandals
Facebook has had its share of scandals in the past.
One of the most prevalent was the discovery that they sold private information about individuals to third parties.
It is widely believed that these third parties then used the information to create targeted ads towards those individuals.
Those ads could be as harmless as pushing a product for them to buy or more nefarious in pushing a political idea.
The problem with this is that shareholders didn’t have a say in whether they wanted to sell private data to third parties or not.
It was a decision that was ultimately left up to Zuckerberg.
Had it been open to the shareholders, there may have been more restraint or safeguards put in place.
Because Zuckerberg made the decision on his own, shareholders found themselves caught up in the scandal.
It caused many to sell their shares in protest.
Should another scandal arise, then the shareholders will find themselves helpless again.
There’s been a lot of discussion over whether social media platforms have the right to censor or not.
While Twitter tends to be at the core of this debate, Facebook is also often discussed.
There are some accusations that Facebook has censored various posts or accounts.
The public is in a debate over whether the company has the right to do that or not.
This issue becomes especially tricky because of Facebook’s unique status of being a public company with private ownership.
The shareholders may feel a certain way about the issue.
However, because Zuckerberg has the controlling interest, it’s his opinion that truly matters.
He’ll be the one that decides whether Facebook censors or doesn’t censor.
This matters because it could impact how the public perceives Facebook.
It may make many decide to leave the platform.
If an exodus occurs, then shareholders could lose a lot of value on their shares.
This is all because they’re unable to voice or reinforce their opinions on certain business matters.
What Are The Benefits Of Facebook Being A Private Company?
Before Facebook became public, it enjoyed some benefits as a private company.
Here are a few benefits that other companies can enjoy if they remain private.
1. Finances Are Private
When a company becomes public, one of the requirements from the SEC is that the company must publish quarterly reports about its finances.
This gives the shareholders insights as to how their investments are doing.
It also makes it more transparent to ensure future investors that it is a safe bet for their investments.
The problem with this is that it can often backfire for companies.
They have to consistently report profits to make shareholders and analysts happy.
That isn’t always the case as the market fluctuates every day.
Being private means that the company doesn’t have to publish its quarterly reports.
Before it became public, Facebook could keep its financial records to itself.
This is advantageous because it keeps its competitors guessing.
When a competitor can see how its rival is doing financially, this helps it come up with a strategy on how to outperform the rival.
This can be a disadvantage for the public company.
A private company keeps that information a secret.
It forces its competitors to try and guess what it’s doing that is making it successful.
It also helps conceal any poor performances that the company might see throughout the year.
When analysts discover a poor performance, then they’re quick to shine a light on it.
This can make people wary of shopping at the company, which only hurts it further.
It can also turn away private investors that the company is relying on.
A great benefit of a private company is being able to keep its financial records private.
2. Focus On Long-Term Goals
A problem that many public companies face is being able to give short-term results that pacify their shareholders.
When shareholders see a poor quarter, then they start to panic.
To avoid that, public companies have a lot of pressure to focus on short-term goals to appease shareholders and perform well each quarter.
A private company doesn’t suffer from that pressure.
While it may focus on short-term goals, too, the bulk of its attention can go towards long-term goals.
This means that the company can have better management and make better deals.
The business becomes more sustainable since it is looking at long-term goals rather than short-term ones.
With this change in focus, the private company tends to stand a better chance at surviving uncertainty and poor performance than a public company focused on short-term goals.
3. Control Over Corporation Governance
Another benefit that Facebook enjoyed, and even still enjoys now to an extent, is control over the company’s governance.
A private company is able to structure the company how it wants.
This allows it to be more flexible and quicker to act.
When a company becomes public, however, the SEC has a few requirements on how the company has to structure itself.
It needs a board, for example, which represents the shareholders.
The rest of the company is then structured around the board.
This means that a public company is less flexible.
It must follow the structure that the SEC requires it to use.
A private company, thanks to its flexible governance, can respond faster to emergencies or with innovation than a public company.
What Are The Benefits Of Facebook Being A Public Company?
After 2012, Facebook officially became a public company.
Anyone can buy its shares on the stock market.
Although Facebook could have remained private, it chose to go public.
Here are a few benefits that Facebook has received from deciding to become a public company.
1. Fast Capital Gain
One of the advantages of an IPO is that the company receives a lot of capital quickly.
With an influx of investors, the company becomes flush with cash.
This allows it to finally finance investments and innovations that it had planned but didn’t have the funding for on its own.
It can buy out competitors, increase its marketing, and finally have the funds it needs to bring the business to the next level.
2. Attracts Private Investors
Although going public means that average investors can buy their shares, an advantage of being a public company is that it can also attract private investors.
Private investors usually have a lot of money that they can spend on shares.
Not only does this carry some prestige for the company, but it also enables it to use that money to lower its debt ratio.
Along with private investors, a public company can attract top-tier talent to its company and senior management.
It allows the company to become stronger and more invested in its growth and future.
A final benefit of being a public company is that it increases its perceived value in the eyes of the general public.
For many individuals, a company that goes public means that it has succeeded in the world of business.
This adds to its reputation and helps make the company seem more valuable.
Not only does this perception help attract more investors but also more customers or clients.
It gives those looking to partake in the services or products the company offers more confidence in it.
Facebook used to be a private company, but in 2012, it became a public company.
That said, many consider Facebook a limited private company because of the way the company structures its stocks.
Although it has many shareholders, Mark Zuckerberg still retains primary ownership and control of the company.