When starting a new business firms should consider a suitable setting that allows the firm to adapt and innovate, take risks, maintain a long-term orientation, and draw top management talent. Private firms offer the ability to avoid Sarbanes-Oxley rules, more effectively use leverage, and avoid director liability.
Private firms are more apt to maintain a growth orientation making it easier for them to dispel risk. Human capital is most important in developing a growth orientation and fostering creativity. Public firms focus more on elaborate planning and avoiding risk. Similarly, public firms avoid economic distress costs. Private firms focus on employee welfare and a culture conducive to creativity and growth.
Entrepreneurs should consider maintaining a private firm status as long as possible to facilitate growth and creativity. Going public can increase the chance of bankruptcy. However, smaller private firms are more susceptible to takeover. What is right for your firm?
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