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Which is Better For You: Private or Public Companies? - Paul Greenberg

 

LEGAL

From distributors' perspectives, whether a company is private or public can offer varying advantages and disadvantages. One is not better than the other per se, and whether one benefits distributors or not often has to do with management. Knowing the "pros and cons" of each can help you better understand how and why your company makes decisions, as well as what to consider when examining an opportunity.

One advantage of publicly-traded companies is that, as a field person, you can find out an enormous amount of information about them just using the internet, or by accessing documents which public companies are required to file with the SEC. Private companies can be as open or closed about their information as they choose to be, and most of them are not very open. In a public company, the field can benefit from buying shares on the open market, and the company can more easily incorporate shares compensation programs.

At the same time, the existence of public stockholders might influence a company in ways that are not necessarily in the best interest of distributors. For example, it may be in the interest of the field, but not the shareholders, to launch a controversial product or fight the government on certain issues. In my experience, a private company can sometimes stand up more effectively to the government than a public company, because the management of the public company has to be concerned about whether the shareholders agree with the decision to do so.

A private company can bet the company because it's theirs to bet, while a public company may not be able to take the same risks. In this country, public companies are supposed to serve the shareholders first, even though some shareholders have a short-run mentality while senior field people have a longer-range commitment.

Let's compare two hypothetical companies: They are both public; both have sales of $100 million dollars. Company A has a 70% pay-out to the field and very little profit at the end of the year-- just enough to pay the bills and have a little bit extra for shareholders, investing, R&D, etc. Company B pays out 30% and has an enormous amount of profit at the end of the year.

From one perspective, Company A is obviously better for the distributor and Company B is better for the shareholders. However, there can be too much of a good thing. Most companies pay out between 30-50%, and from my point of view, I wouldn't want to be with a company that has a 60-70% payout, because it doesn't leave much for profit, cost of goods sold, or capital investment. For a product-based company, it can be an indication that whatever they're selling doesn't cost much and probably isn't very good.

For shareholders and for the stability and growth of the company, they need substantial income available for buildings, research, new product exploration, marketing materials, etc. If you plan to be with them long-term, you want your company to be spending the money they should for the adequate equipment and personnel to accommodate growth and handle emergencies. Companies that pay out too much to the field often suffer in these areas.

To go public requires a certain level of stability. Public companies are usually the ones that have been around a while and whose sales and earnings are expected to continue growing consistently and substantially. That provides a great opportunity for shareholders and many distributors, but possibly less of one from the perspective of a distributor motivated to "get in on the ground floor." Just because a company's sales or earnings are not consistent and predictable enough to go public doesn't mean it doesn't offer a good opportunity for someone in the field-- it's just harder to get the facts.

 

Paul Greenberg practices law, with a specialty in Network Marketing, at 1875 Century Park East, Ste. 700, Los Angeles, CA 90067; (310) 277-6109.

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Reprinted with permission from Upline, Upline Legal - November/December 1998, 888-UPLINE-1, http://www.upline.com

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