Facebook is now faced with the same question which haunted another distinguished member of its broader fraternity, Google, a few years ago — whether to go public or not. With Goldman Sachs, pumping equity of $ 450 million into Facebook and keen to palm off as much of this to wealthy investors through a Special Purpose Vehicle (SPV), it is faced with an imminent prospect of being questioned by the Securities and Exchanges Commission (SEC) as to the total number of shareholders it has.

An ostensibly private company but with more than 500 direct or indirect shareholders (hiding in large numbers inside a monolithic conduit) always faces the threat of being called upon to abide by norms applicable to listed companies, namely quarterly disclosure of results and publishing of audited accounts.

Google in 2004 thought it more prudent to go for listing rather than having to make such public disclosures despite being a closely held company on surface.

Goldman Sachs' SPV would be in addition to the existing shareholders of Facebook and obviously breach the 500 mark and hence the dilemma — whether to go public or not - the one that assailed Google as well. Facebook's worry is that its revenue model is not as robust as Google's and any premature listing could be counter-productive.

The Indian company law too has been grappling with the issue of substantial public participation in ostensible private companies. Earlier, Section 43A pummelled private companies with substantial participation in terms of various criteria such as at least 25 per cent of its capital being held by a public company, turnover of beyond certain threshold etc and practically made them public companies particularly for disclosure purposes so that public interest was served. This section was unceremoniously jettisoned by the Companies (Amendment) Act, 2000.

But simultaneously the definition of public company was amended to include private companies that were the subsidiaries of public companies. The cognoscenti aver that the simultaneous amendment to the definition of public company has retrieved the ground only partially given the fact that more often than not it takes more than 50 per cent equity participation to make a company subsidiary of the investor-company. In the event, today there are in India a large number of private companies with substantial public participation.

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