Definition
A privately held company is a business entity that is owned by private individuals or entities, and its shares are not traded on public stock exchanges. These companies are often smaller and include family-owned or closely held corporations. The main types of private companies can be partnerships, sole proprietors, and private limited companies.
Key Takeaways
- A Privately Held Company is one that is owned by non-governmental organizations, or a relatively small number of shareholders or company members. Unlike publicly held companies, they do not offer or trade their company stock (shares) to the general public on the stock market exchange.
- Private companies can come in different types, which include sole proprietorships, partnerships, and privately held corporations. Sole Proprietorship is the simplest form where one person owns the business; Partnership involves two or more people who share the ownership, and privately held corporations are owned by a limited number of shareholders who don’t publicly trade the stock.
- One of the significant differences between publicly traded and privately held companies is the regulatory oversight and transparency. Private companies are not required to disclose their financials while public companies must adhere to SEC (Securities and Exchange Commission) regulations and standards, making their financial and operating standing clear to potential investors.
Importance
The finance term “Privately Held Company” refers to a company that is owned by non-governmental organizations or a relatively small number of shareholders or company members, and 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.
The types of private companies are important because they contribute significantly to the economy, often having the flexibility to make quick decisions that drive innovation and competition.
They do not have the regulatory restrictions of publicly traded firms, which enhances confidentiality and the long-term investment perspective.
Additionally, the earnings, decision-making process, and future planning strategies of privately held companies are not disclosed to the public, which offers a tactical advantage over competitors.
Hence, understanding private companies and their types is key to finance and business management.
Explanation
A privately held company serves several fundamental purposes in the world of business and finance. One key function is maintaining control and decision-making within a select group of owners, which might comprise individuals, partners, or a limited number of shareholders.
This allows a company to make strategic choices and implement business plans without the pressure of satisfying a vast, anonymous shareholder body, as in public companies. A privately held company can also make long-term plans that might not yield immediate results, as there is less focus on quarterly results—a common demand from shareholders in publicly traded companies.
Private companies are also utilized for their confidentiality advantages. Since they are not required to publicly disclose their financials, like a public company, they can prevent competitors from gaining insight into their operations and finances, permitting them to safeguard their strategies.
Private companies also avoid market pressure and public scrutiny, which can create a volatile environment resulting from market speculation and other external influences. This equips private companies with a level of stability and decision-making flexibility, which can be integral for launching innovative projects and adopting unique business strategies.
Examples of Privately Held Company | Types of Private Companies
Mars Inc.: Mars Inc., which is known for manufacturing chocolate and candies (like M&M’s, Snickers, and Mars Bars), is one of the largest privately held companies in the world. Mars Inc. was established in 1911, and it is currently operated by the Mars family. The company reported a revenue of around $37 billion in
Apart from manufacturing confectioneries, the company also invests in pet care, food, and drink manufacturing.
Koch Industries: Koch Industries, based in the U.S., is another prominent example. Headed by Charles Koch, this company has diverse businesses ranging from manufacturing, refining, and distribution of various products like chemicals, energy, minerals, etc. Koch Industries is the second-largest privately held company in the United States, with annual revenues of around $115 billion.
PricewaterhouseCoopers (PwC): PwC is one of the leading professional services networks in the world, offering audit, assurance, consulting, and tax services. PwC operates as a network of firms in 156 countries and generates revenues of over $42 billion. Despite its wide reach and large size, the company is privately owned meaning its shares are not traded on a public stock exchange.
FAQs about Privately Held Companies and Types of Private Companies
What is a Privately Held Company?
A privately held company, private company, or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the company’s stock is offered, owned and traded or exchanged privately or over-the-counter.
What are the types of Private Companies?
Private companies can be classified into different categories. The main types are as follows: Sole Proprietorships, Partnerships (General Partnerships, Limited Partnerships, and Limited Liability Partnerships), Limited Liability Company (LLC), and Corporations (S Corporations and C Corporations).
What is the difference between a Public Company and a Privately Held Company?
A public company is one that is owned by the public and its shares are freely traded on a stock exchange. On the other hand, a privately held company is owned by a small group of people and its shares are not publicly traded.
Can a Privately Held Company go Public?
Yes, a privately held company can go public through a process known as an Initial Public Offering (IPO), where the company’s shares are sold to the general public for the first time.
Are the financial statements of a Privately Held Company made public?
No, typically, a privately held company does not have to disclose their financial statements publicly. They are not under the obligation to publish their financial information as public companies are because their shares are not traded on the public stock exchanges.
Related Entrepreneurship Terms
- Family-Owned Businesses: These are companies that are owned and managed by one or more family members.
- Start-Up Companies: These are newly established businesses, usually in the technology or innovation sector. They are privately held until they decide to go public through an IPO.
- Non-Profit Corporations: These private companies are not driven by profit. They are established to advance certain causes or provide certain services.
- Private Equity Firms: These are firms that invest in private companies. They can either help these companies grow, or buy them outright.
- Closely Held Corporations: These are corporations that have a limited number of shareholders and are not publicly traded. Shareholders often have a close relationship with the business.
Sources for More Information
- Investopedia: This website provides a vast array of articles and resources on financial concepts, including privately held companies.
- Entrepreneur: Entrepreneur offers guides, tips, and articles relevant to different aspects of business and finance, including different types of private companies.
- The Balance: Among its resources is a substantial section dedicated to small businesses where one can find in-depth information about privately held companies.
- Forbes: This media company focuses on business and financial news. It provides articles highlighting the latest trends and information about the finance world including privately held companies.
