Private vs Public Companies: What Investors Need to Know Before They Invest (Part 1)

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• Spirit Airlines Is Dead, Long Live the ‘Spirit Effect’
• GameStop Wants to Buy eBay– But How?
• The Rise of the Company Veteran CEO
• Can ChatGPT Manage Your Stock Portfolio?

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Ask the average smart, well-read American what it means to “invest in a company,” and you’ll usually get some version of the same answer: you buy a stock on the stock market. That answer was largely correct in 1985. It is increasingly incomplete in 2026.

You probably already know what a stock is. (And if you don’t, then we encourage you to start here by reading: Investing Basics For Beginners Installment #1: What is Stock? And Should You Buy Some?)

But investing today has grown considerably more complex than just buying and selling stocks. The modern investment landscape includes a spectrum of company structures, from companies that trade freely on major exchanges, to those that remain private or operate with limited transparency. All the while, the line between public and private investing has also become increasingly blurred.

For anyone just starting out, or for those trying to make sense of how to invest in the companies you hear about in the news, understanding how these different structures work and the risks associated with each is essential.

The Lay of the Land: What are the Different Types of Companies You Can Invest in?

Start with the basic taxonomy. There are essentially four buckets a company can sit in:

• Publicly traded companies (stock is listed on a stock exchange or stock can be traded over-the-counter)
• Publicly listed companies (stock is listed on a stock exchange)
• Private companies with public debt (stock is not publicly traded, but debt is publicly traded)
• Private companies (stock and debt are both not publicly traded)

Publicly Listed Companies

These companies issue stock listed on a stock exchange like the Nasdaq and the New York Stock Exchange (NYSE), where anyone with a brokerage account can buy in.

Leaving aside direct listings, SPAC mergers, and reverse mergers in this article, a company generally becomes public through an Initial Public Offering, or IPO. Think of an IPO as a coming-out party for the company: it sells a slug of shares to the public for the first time, raising capital to fuel future growth (and/or, in some cases, to let early investors and insiders cash out). SpaceX, currently the world’s most valuable privately held company, is gearing up for what is expected to be the largest IPO in history.

Publicly listed companies are generally considered more transparent than other types of companies, but they are not without risk. For example:

• The pressure to meet quarterly earnings expectations can encourage management to prioritize short-term performance over long-term strategy.
• On an open market, share prices can be heavily influenced by investor sentiment and short-term news, rather than the company’s underlying fundamentals. This can lead to volatility, particularly during periods of market uncertainty. This dynamic can be especially pronounced around IPOs. Newly public companies often have limited trading history, making it more difficult for investors to assess their long-term value. As a result, prices can fluctuate significantly in the early stages of trading, increasing the risk of sharp losses for early investors.

Publicly Traded Companies

Publicly traded companies issue stock that can be traded among the general public. Many also issue bonds, meaning that both their equity and debt are actively traded in public markets. (More on public debt down below.)

This is a broad category that includes publicly listed companies, but it also includes companies that only trade over-the-counter (OTC).

OTC stocks are also known as unlisted stocks. As the name suggests, they aren’t listed on major exchanges. Instead, OTC stocks are traded on the OTC market, which consists of four tiers:

• OTCQX (the top tier with high financial standards and strict compliance)
• OTCQB or Venture Market (the middle tier with some reporting requirements)
• OTCID Basic Market (a lower tier with only basic financial or disclosure requirements)
• Pink Limited and Expert Market (limited or no disclosure requirements, largely restricted to sophisticated investors)

Think of these tiers as floors of an office building, with each floor a little less reputable than the one above it.

Foreign companies such as Nestle, Nintendo, and Volkswagen issue OTC stocks on the OTCQX, preferring to bypass the international standards required to list on major US exchanges.

Then there’s the OTCQB, branded as the “Venture Market.” To be clear, OTCQB is generally not where startups in the venture-capital sense raise money. Those companies are private and typically funded through angels, VCs, or accredited-investor placements. OTCQB is more accurately described as a market for smaller public companies that aren’t yet ready (or large enough) to list on Nasdaq or the NYSE. Many are small-cap US and international firms working their way toward an uplisting; others are content to stay where they are.

Then there are the companies further down the ladder.

Many are traded on the OTCID Basic Market, a new market implemented in July 2025, replacing the former “Pink Current” market, which attempts to bring more transparency to investors.

Historically, the ‘pink sheets’ were a high-risk and highly speculative market for OTC stocks and were the stomping ground for distressed or bankrupt companies, shell companies, and other companies that don’t provide any financial information.

These stocks may be penny stocks– shares that trade below $5 per share under the SEC’s definition, though in practice the term usually conjures something trading for pennies, often issued by small companies with thin disclosure. (If this all sounds familiar, it’s because they were famously exploited by one of Wall Street’s greatest anti-heroes, Jordan Belfort from The Wolf of Wall Street.)

Stricter rules have since been implemented. Companies trading on the OTCID need to meet basic reporting standards, including quarterly and annual disclosures, management certifications, and company profile updates.

Companies that don’t meet those requirements are now relegated to the Pink Limited and Expert Market. The Pink Limited market is accessible to the public, but mainly for speculative investors. The Expert Market is restricted to “qualified investors,” including broker-dealers and institutional investors.

But let’s be clear: even with the cleanup, OTC stocks are still considered highly speculative investments. Stocks traded on major exchanges set out a rigorous application process that vets all listings. OTC stocks are harder to research, with less information provided than publicly listed companies. Investors here should proceed with caution.

Companies with Publicly Traded Debt and Non-Traded Equity

Companies in this category sit in an in-between zone. The public can’t buy shares, and owners and private investors keep full control of the equity. But the public can trade the company’s debt in the form of bonds or notes, allowing the company to raise capital without diluting ownership.

This in-between status comes with in-between disclosure. If the debt is SEC-registered, the company generally has to file annual and quarterly reports (10-Ks and 10-Qs) and disclose material events on Form 8-K, just like a fully public company. But many companies in this category issue debt under Rule 144A and sell only to large institutional buyers. This carries lighter reporting obligations and far less public visibility.

Many of them are owned by private equity firms that financed an acquisition with debt (a leveraged buyout, or LBO). Family-owned and founder-controlled businesses sometimes use the same playbook.

Investing in this kind of debt carries real risks. Corporate bonds don’t trade as continuously or as transparently as stocks. Most trade over-the-counter, sometimes only a few times a day, but their prices still respond to changes in interest rates, investor sentiment, and the company’s financial health.

Debt is typically viewed as safer than equity, but that assumption can break down when companies take on large amounts of leverage. Creditors may face significant losses if the company struggles to generate enough cash flow to meet its obligations. Investors may also face challenges in recovering their investment if the company enters into bankruptcy.

Saks Global, the entity formed in 2024 when HBC (Saks Fifth Avenue’s parent) acquired Neiman Marcus, is an example of a private company carrying significant publicly traded debt.

Alarm bells started ringing almost immediately. The deal was financed in part with roughly $2.2 billion in bonds, and creditors didn’t like what they saw. Bonds quickly traded down to less than 40 cents on the dollar. From there, the slope only got steeper.

After Saks Global missed a $100 million interest payment in December 2025, the company filed for Chapter 11 bankruptcy in January 2026, with Saks bonds falling to less than 1 cent on the dollar.

Private Companies where Stock and Debt are both Private

Companies in this last category keep both sides of their capital structure off the public market. Their equity is held by founders, employees, private investors, or private equity sponsors. Their borrowing comes from banks or, increasingly, from the private credit market.

Borrowing privately has real appeal for the borrower. Deals can close in weeks rather than months, with terms negotiated directly between the company and a small group of lenders rather than dictated by whatever the public bond market is willing to swallow that week. Covenants can be tailored. There’s no need to obtain a credit rating, with all the cost, scrutiny, and downgrade risk that comes with one. And because the loan doesn’t trade publicly, its price doesn’t bounce around on a screen every day– even though the economic exposure to interest rates is just as real (most private credit loans are floating-rate, so the borrower feels rate moves directly). What’s avoided is the headline volatility, not the underlying sensitivity.

The trade-off, from the lender’s side, is illiquidity and lighter disclosure, which is why private credit loans are typically priced to yield more than comparable public debt.

These companies are not regulated the way public companies are, but they are still subject to the federal and state securities laws. When a private company, whether a startup chasing unicorn status or the local pizza shop, takes money from a passive investor, it is issuing a security. (Don’t believe us about investing $50,000 in your cousin Vinny’s pizza shop? Read Investing Basics For Beginners Installment #1: What is Stock? And Should You Buy Some?)

But we’re not really talking to you about Cousin Vinny’s pizza shop (or Bubba’s Bakery for that matter). Do what you want to help your Cousin Vinny. Just keep in mind that going into business with friends and family doesn’t always go well, and that most small businesses fail.

We’re talking about two other ways you, dear reader, are likely to encounter this category:

1. Equity in a private company with grander aspirations. You may have access to these opportunities because you qualify as an accredited investor, or because you encounter a crowdfunding offering and decide to participate. The pitch is usually some version of “get in before they go public.” Sometimes that pays off. More often it doesn’t, for the reasons we covered earlier: you’re investing with limited information, in a security you can’t easily sell, in a company that may take a decade to produce a return (if it produces one at all).
2. Private credit, often without realizing it. Plenty of privately held companies, when they need to borrow, bypass traditional banks and go to the private credit market, which has ballooned in recent years as tighter banking regulations have pushed lending out of banks and into private funds. As an individual investor, you’re unlikely to make a private credit loan directly. But you may already have exposure through an interval fund, a business development company (BDC), or soon, your 401(k) plan, since the rules around alternative assets in retirement accounts have loosened. Whether or not the average 401(k) participant is equipped to evaluate that exposure is a separate question, one we addressed here.

This Part 1 sets the stage for next week’s Part 2. Spoiler alert: in Part 2, we will urge you not to invest more than a sliver of your net worth into this category of company unless you fall into a very narrow exception. You can now read Part 2 here.