A privately held company or close corporation is a business company owned neither by non-governmental organizations nor by a relatively small number of shareholders or company members which does not offer or trade its company stock (shares) to the general public on the stock market exchanges, but rather the company's stock is offered, owned and traded or exchanged privately. More ambiguous terms for a privately held company are unquoted company and unlisted company.
- State ownership vs private ownership
- Ownership of stock
- Form of organization
- Reporting obligations and restrictions
- Privately owned enterprise
- Types of privately owned business
Though less visible than their publicly traded counterparts, private companies have major importance in the world's economy. In 2008, the 441 largest private companies in the United States accounted for US$1,800,000,000,000 in revenues and employed 6.2 million people, according to Forbes. In 2005, using a substantially smaller pool size (22.7%) for comparison, the 339 companies on Forbes' survey of closely held U.S. businesses sold a trillion dollars' worth of goods and services (44%) and employed 4 million people. In 2004, the Forbes' count of privately held U.S. businesses with at least $1 billion in revenue was 305.
Cargill, Koch Industries, Bechtel, Publix, Pilot Corp., Deloitte Touche Tohmatsu (one of the members of the Big Four accounting firms), Hearst Corporation, Cox Enterprises, S. C. Johnson, McWane, Carlson Companies, and Mars are among the largest privately held companies in the United States. KPMG, the UK accounting firms Ernst & Young and PricewaterhouseCoopers, IKEA, Trafigura, J C Bamford Excavators (JCB), Lidl, Aldi, LEGO, Bosch, Rolex, Ferrero, Bertelsmann and Victorinox are some examples of Europe's largest privately held companies.
State ownership vs. private ownership
In the broadest sense, the term private corporation refers to any business not owned by the state. This usage is often found in former communist countries to differentiate from former state-owned enterprises, but it may be used anywhere when contrasting to a state-owned company.
In the United States, the term privately held company is more often used to describe for-profit enterprises whose shares are not traded on the stock market.
Ownership of stock
In countries with public trading markets, a privately held business is generally taken to mean one whose ownership shares or interests are not publicly traded. Often, privately held companies are owned by the company founders and/or their families and heirs or by a small group of investors. Sometimes employees also hold shares of private companies. Most small businesses are privately held.
Subsidiaries and joint ventures of publicly traded companies (for example, General Motors' Saturn Corporation), unless shares in the subsidiary itself are traded directly, have characteristics of both privately held companies and publicly traded companies. Such companies are usually subject to the same reporting requirements as privately held companies, but their assets, liabilities and activities are also included in the reports of their parent companies, as required by the accountancy and securities industry rules relating to groups of companies.
Form of organization
Private companies may be called corporations, limited companies, limited liability companies, unlimited companies, or other names, depending on where and how they are organized and structured. In the United States, but not generally in the United Kingdom, the term is also extended to partnerships, sole proprietorships or business trusts. Each of these categories may have additional requirements and restrictions that may impact reporting requirements, income tax liabilities, governmental obligations, employee relations, marketing opportunities, and other business obligations and decisions.
In many countries, there are forms of organization which are restricted to and are commonly used by private companies, for example the private company limited by shares in the United Kingdom (abbreviated Ltd) or private unlimited company and the proprietary limited company (abbreviated Pty Ltd) or unlimited proprietary company (abbreviated Pty) in Australia.
Reporting obligations and restrictions
Privately held companies generally have fewer or less comprehensive reporting requirements and obligations for transparency, via annual reports, etc. than publicly traded companies do. For example, in the United States, unlike in Europe, privately held companies are not generally required to publish their financial statements. By not being required to disclose details about their operations and financial outlook, private companies are not forced to disclose information that may potentially be valuable to competitors and can avoid the immediate erosion of customer and stakeholder confidence in the event of financial duress. Further, with limited reporting requirements and shareholder expectations, private firms are afforded a greater operational flexibility by being able to focus on long term growth rather than quarterly earnings. In addition, private company executives may steer their ships without shareholder approval, allowing them to take significant action without delays. In Australia, Part 2E of the Corporations Act 2001 requires that publicly traded companies file certain documents relating to their annual general meeting with the Australian Securities and Investments Commission. There is a similar requirement for large proprietary companies, which are required to lodge Form 388H to the ASIC containing their financial report. In the United States, private companies are held to different accounting auditing standards than are public companies, overseen by the Private Company Counsel division of FASB.(see external links)
Researching private companies and private companies' financials can involve contacting the Secretary of State for the state of incorporation (or for LLC or partnership, state of formation), or using specialized private company databases such as Dun & Bradstreet or PrivCo.(see external links) Other companies, like Sageworks, provide aggregated data on privately held companies, segmented by industry code.
Privately held companies also sometimes have restrictions on how many shareholders they may have. For example, the U.S. Securities Exchange Act of 1934, section 12(g), limits a privately held company, generally, to fewer than 2000 shareholders, and the U.S. Investment Company Act of 1940, requires registration of investment companies that have more than 100 holders. In Australia, section 113 of the Corporations Act 2001 limits a privately held company to fifty non-employee shareholders.
Privately owned enterprise
A privately owned enterprise refers to a commercial enterprise that is owned by private investors, shareholders or owners (usually collectively, but they can be owned by a single individual), and is in contrast to state institutions, such as publicly owned enterprises and government agencies. Private enterprises comprise the private sector of an economy. An economic system that 1) contains a large private sector where privately run businesses are the backbone of the economy, and 2) business surplus is controlled by the owners, is referred to as capitalism. This contrasts with socialism, where industry is owned by the state or by all of the community in common. The act of taking assets into the private sector is referred to as privatization. The goal of private enterprise differs from other institutions, the major difference being private businesses exist solely to generate profit for the owners or shareholders.
A privately owned enterprise is one form that private property may take.