Public vs. private sector: What's the difference?

You interact with the public and private sectors every day. From buying groceries to driving on a highway, you use services and products from public and private companies. 

In this article, we break down the basics of each financial market and explain what you need to know.

The public markets

In the public markets, companies sell shares to the general population, who can then buy, sell or trade these shares on a stock exchange. Stocks and bonds are examples of traditional asset classes and are considered to be mainstream investments. When someone invests in the stock market—whether individually or through a program like a 401(k)—they own a small portion (a share) of the public companies they’ve invested in.  

Often larger and more mature, public companies are heavily regulated by governmental organizations like the Securities Exchange Commission. To ensure they remain accountable to shareholders, these companies are also required to disclose information about their performance, which makes it easy to see their financials, revenue and more. 

What are the key characteristics? 

• Individuals can invest in this market
• Public companies are heavily regulated 
• Public companies must report on performance 
• It’s easy to find information about them  

The private markets

In the private markets, on the other hand, fast-growing companies that are not publicly traded give professional investors equity in exchange for the funding and mentoring they need to grow. These investors include venture capital firms, which invest in young companies (startups), and private equity firms, which invest in more established companies. With the exception of extremely wealthy individuals, the general public cannot invest in this space. 

You may have also heard the term alternative asset classes. Alternative investments or asset classes include venture capital, private equity, real estate and hedge funds.

Because private companies do not answer to public shareholders, they are less heavily regulated. They do not have to disclose earnings reports or submit financial statements for auditing, which makes it hard for outsiders to find reliable, accurate information about them. 

It’s important to note that not all private companies are backed by investors. A family or individually owned small business, for example, is unlikely to be backed by a venture capitalist or private equity firm, but it’s still private—i.e., not traded on a public stock exchange. In fact, most private companies fall into this category. 

What are the key characteristics? 

• Only professional investors (or very wealthy individuals) can invest in this market
• Private companies are less heavily regulated     
• Private companies do not have to report on performance
• It’s hard to find information about them