Aprivately held company (or simply aprivate company) is a company whoseshares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, thecompany's stock is offered, owned, traded or exchanged privately, also known as "over-the-counter". Related terms areunlisted organisation,unquoted company andprivate equity.
Private companies are often less well-known than theirpublicly traded counterparts but still have major importance in the world'seconomy. For example, in 2008, the 441largest private companies in theUnited States accounted for $1.8 trillion in revenues and employed 6.2 million people, according toForbes.[1]
In general, all companies that are not owned by the government are classified as private enterprises. This definition encompasses both publicly traded and privately held companies, as their investors are individuals.
Private ownership of productive assets differs fromstate ownership orcollective ownership (as in worker-owned companies). This usage is often found in formerEastern Bloc countries to differentiate from formerstate-owned enterprises,[citation needed] but it may be used anywhere in contrast to a state-owned or a collectively owned company.
In theUnited States, a privately held company refers to a business entity owned by private stakeholders, investors, or company founders, and its shares are not available for public purchase on stock exchanges. That contrasts with public companies, whose shares are publicly traded, which allows investing by the general public.
In countries with public trading markets, a privately held business is generally taken to mean one whose ownershipshares or interests are not publicly traded. Often, privately held companies are owned by the company founders or their families and heirs or by a small group of investors. Sometimes, employees also hold shares in private companies.[2][page needed] Mostsmall businesses are privately held.
Subsidiaries andjoint ventures ofpublicly 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 including the reports of theirparent companies, as are required by the accountancy and securities industry rules relating to groups of companies.
Private companies may be calledcorporations,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 theUnited Kingdom, the term is also extended topartnerships,sole proprietorships orbusiness trusts. Each of those 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 that are restricted to and are commonly used by private companies, for example, theprivate company limited by shares in the United Kingdom (abbreviatedLtd) orunlimited company and theproprietary limited company (abbreviatedPty Ltd) orunlimited proprietary company (abbreviatedPty) inSouth Africa andAustralia.
InIndia, private companies are registered by theRegistrar of Companies, which is under theMinistry of Corporate Affairs. Indian private companies must contain the word Private Limited at the end of their names.[3]
Privately held companies generally have fewer or less comprehensive reporting requirements and obligations fortransparency, via annual reports, etc. than publicly traded companies do. For example, in the United States, privately held companies are not generally required to publish theirfinancial 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 so 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, which allows them to take significant action without delays.[4][5]
In Australia, Part 2E of theCorporations Act 2001 requires publicly traded companies to file certain documents relating to theirannual general meeting with theAustralian Securities and Investments Commission (ASIC). 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 public companies, overseen by the Private Company Counsel division of theFinancial Accounting Standards Board.(seeexternal links)
Researching private companies and private companies' financials in the United States can involve contacting thesecretary of state for theU.S. state of incorporation (or for LLC or partnership, state of formation), or using specialized private company databases such asDun & Bradstreet. Many other companies provide aggregated data on privately held companies, segmented by industry code. By contrast, in the United Kingdom, all incorporated companies are registered centrally withCompanies House.[6]
Privately held companies also sometimes have restrictions on how manyshareholders 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 theCorporations Act 2001 limits a privately held company to 50 non-employee shareholders.
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Aprivately owned enterprise is a commercial enterprise owned by private investors, shareholders or owners (usuallycollectively, but they can be owned by asingle individual), and is in contrast to state institutions, such aspublicly owned enterprises andgovernment agencies. Private enterprises comprise theprivate 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) a business surplus is controlled by the owners, is referred to ascapitalism. This contrasts withsocialism, where the industry is owned by thestate or by all of the community in common. The act of taking assets into the private sector is referred to asprivatization.
A privately owned enterprise is one form thatprivate property may take.
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In the United Kingdom, aclose orclosely held company is defined as a company which is controlled by either five or fewer shareholders or is controlled by shareholders who are also directors.[7]
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