A
privately held company or
close corporation is a business company owned either by non-governmental organizations or by a relatively small number of
shareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s or company members which does not offer or trade its company
stockThe capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
(shares) to the general public on the
stock marketA stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
exchanges, but rather the company's stock is offered, owned and traded or exchanged privately. Less ambiguous terms for a privately held company are
unquoted company and
unlisted company.
Though less visible than their
publicly tradedThis is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
counterparts, private companies have a major importance in the world's
economyAn economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
. In 2008, the 441 largest private companies in the United States accounted for $1.8 trillion in revenues and employed 6.2 million people, according to
ForbesForbes is an American publishing and media company. Its flagship publication, the Forbes magazine, is published biweekly. Its primary competitors in the national business magazine category are Fortune, which is also published biweekly, and Business Week...
. In 2005, the 339 companies on
ForbesForbes is an American publishing and media company. Its flagship publication, the Forbes magazine, is published biweekly. Its primary competitors in the national business magazine category are Fortune, which is also published biweekly, and Business Week...
' survey of closely held U.S. businesses sold a trillion dollars' worth of goods and services 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.
Koch IndustriesKoch Industries, Inc. , is an American private energy conglomerate based in Wichita, Kansas, with subsidiaries involved in manufacturing, trading and investments. Koch also owns Invista, Georgia-Pacific, Flint Hills Resources, Koch Pipeline, Koch Fertilizer, Koch Minerals and Matador Cattle Company...
,
Bechtel Bechtel Corporation is the largest engineering company in the United States, ranking as the 5th-largest privately owned company in the U.S...
,
CargillCargill, Incorporated is a privately held, multinational corporation based in Minnetonka, Minnesota. Founded in 1865, it is now the largest privately held corporation in the United States in terms of revenue. If it were a public company, it would rank, as of 2011, number 13 on the Fortune 500,...
,
PricewaterhouseCoopersPricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....
,
Pilot Corp.Pilot Corporation is a petroleum corporation in Knoxville, Tennessee, United States. Pilot operates the Pilot Food Mart convenience stores in Tennessee. Along with Flying J and CVC Capital Partners, Pilot is joint-owner of Pilot Flying J, the largest truck stop chain in the United States.- History...
,
Ernst & YoungErnst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
,
PublixPublix Super Markets, Inc. is an American supermarket chain based in Lakeland, Florida.Founded in 1930 by George W. Jenkins, it is an employee-owned, privately held corporation. Publix is currently ranked No. 86 on Fortune magazine's list of 100 Best Companies to Work For 2010 and was ranked No...
,
Deloitte Touche TohmatsuDeloitte Touche Tohmatsu Limited , commonly referred to as Deloitte, is one of the Big Four accountancy firms along with PricewaterhouseCoopers , Ernst & Young, and KPMG....
,
Hearst CorporationThe Hearst Corporation is an American media conglomerate based in the Hearst Tower, Manhattan in New York City, New York, United States. Founded by William Randolph Hearst as an owner of newspapers, the company's holdings now include a wide variety of media...
, S. C. Johnson, and
MarsMars, Incorporated is a worldwide manufacturer of confectionery, pet food, and other food products with US$30 billion in annual sales in 2010, and is ranked as the 5th largest privately held company in the United States by Forbes. Headquartered in McLean, unincorporated Fairfax County, Virginia,...
are among the largest privately held companies in the United States.
IKEAIKEA is a privately held, international home products company that designs and sells ready-to-assemble furniture such as beds and desks, appliances and home accessories. The company is the world's largest furniture retailer...
,
TrafiguraTrafigura is an Amsterdam-based multinational company founded in 1993 trading in base metals and energy, including oil. the company had equity of more than $2 billion and a turnover of $73 billion that generated $440 million of profit....
,
J C Bamford Excavators (JCB)JCB is a global construction, demolition and agricultural equipment company headquartered in Rocester, United Kingdom. It is the world's third-largest construction equipment manufacturer. It produces over 300 types of machines, including diggers , excavators, tractors and diesel engines...
,
LEGOThe LEGO Group is a family-owned company based in Billund, Denmark, and best known for the manufacture of Lego-brand toys.The company was founded in 1932 by Ole Kirk Christiansen...
,
BoschRobert Bosch GmbH is a multinational engineering and electronics company headquartered in Gerlingen, near Stuttgart, Germany. It is the world's largest supplier of automotive components...
,
RolexRolex SA is a Swiss watchmaking manufacturer of high-quality, luxury wristwatches. Rolex watches are popularly regarded as status symbols and BusinessWeek magazine ranks Rolex No.71 on its 2007 annual list of the 100 most valuable global brands...
and
VictorinoxVictorinox is a knife manufacturer based in the town of Ibach, in the Canton of Schwyz, Switzerland. Since its acquisition of rival Wenger in 2005, it has, once more, become the sole supplier of multi-purpose knives to the Swiss army.-History:...
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 tradedThis is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
. 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 businessA small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships...
es are privately held.
SubsidiariesA subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...
and
joint ventureA joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
s of publicly traded companies (for example,
General MotorsGeneral Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
' 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
corporationA corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s, limited companies,
limited liability companiesA limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...
,
unlimited companiesAn unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...
, or other names, depending on where and how they are organized. In the United States, but not generally in the United Kingdom, the term is also extended to partnerships,
sole proprietorshipA sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits and has unlimited responsibility for...
s 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 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 sharesA private company limited by shares, usually called a private limited company , is a type of company incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth countries and the Republic of Ireland...
in the United Kingdom (abbreviated
Ltd) or
private unlimited companyAn unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...
and the proprietary limited company (abbreviated
Pty Ltd) or
unlimited proprietary companyAn unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...
(abbreviated
Pty) in Australia.
Reporting obligations and restrictions
Privately held companies generally have fewer or less comprehensive reporting requirements for
transparencyTransparency, as used in science, engineering, business, the humanities and in a social context more generally, implies openness, communication, and accountability. Transparency is operating in such a way that it is easy for others to see what actions are performed...
, via annual reports, etc. than do publicly traded companies. For example, in the United States, unlike in Europe, privately held companies are not generally required to publish their
financial statementsA financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
. 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 haste. In
AustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, Part 2E of the
Corporations Act 2001The Corporations Act 2001 , sometimes referred to just as the Corporations Act , is an act of the Commonwealth of Australia that sets out the laws dealing with business entities in Australia at federal and interstate level...
requires that publicly traded companies file certain documents relating to their
annual general meetingAn annual general meeting is a meeting that official bodies, and associations involving the public , are often required by law to hold...
with the
Australian Securities and Investments CommissionThe Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...
, while there is no similar requirement for privately held companies.
Privately held companies also sometimes have restrictions on how many shareholders they may have. For example, the U.S.
Securities Exchange Act of 1934The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
, section 12(g), limits a privately held company, generally, to fewer than 500 shareholders, and the U.S.
Investment Company Act of 1940The Investment Company Act of 1940 is an act of Congress. It was passed as a United States Public Law on August 22, 1940, and is codified at through . Along with the Securities Exchange Act of 1934 and Investment Advisers Act of 1940, and extensive rules issued by the Securities and Exchange...
, 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
collectivelyA corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
, but they can be owned by a
single individualA sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits and has unlimited responsibility for...
), and is in contrast to state institutions, such as publicly owned enterprises and government agencies. Private enterprises comprise the
private sectorIn economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
of an economy. An economic system that contains a large private sector where privately run businesses are the backbone of the economy is referred to as
capitalismCapitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
. This contrasts with
socialismSocialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
, where industry is owned by the
stateThe public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
or by all of the community in common. The act of taking assets into the private sector is referred to as
privatizationPrivatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
. 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 propertyPrivate property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
may take.
Types of privately owned business
- Sole proprietorship: A sole proprietorship
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits and has unlimited responsibility for...
is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has total and unlimited personal liabilityLegal liability is the legal bound obligation to pay debts.* In law a person is said to be legally liable when they are financially and legally responsible for something. Legal liability concerns both civil law and criminal law. See Strict liability. Under English law, with the passing of the Theft...
of the debts incurred by the business. This form is usually relegated to small businesses.
- Partnership: A partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership. There are three typical classifications of partnerships: general partnershipIn the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:...
s, limited partnershipA limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
s, and limited liability partnershipA limited liability partnership is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important...
s.
- Corporation: A business corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
is a for-profit, limited liabilityLimited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
or unlimited liabilityAn unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...
entity that has a separate legal personalityLegal personality is the characteristic of a non-human entity regarded by law to have the status of a person....
from its members. A corporation is owned by multiple shareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s and is overseen by a board of directorsA board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
, which hires the business's managerial staff. Corporate models have also been applied to the state sector in the form of Government-owned corporations. A corporation may be privately held (that is, close - that is, held by a few people) or publicly traded.
Privately owned businesses are typically divided into two subcategories: privately held companies and publicly traded companies. Publicly traded firms list their shares on the stock market, allowing for more diversified ownership as anyone who purchases their stock becomes a partial owner and is able to receive a portion of its profit. Despite the term "public" in its name, a publicly listed company does not entail public ownership because it is not owned by the whole society. It just means that shares of the company are for sale to anyone in the general public who wishes to purchase them. Publicly listed corporations may be partially owned by peacemakers.
Criticism
Criticism of private business has come from many perspectives, most notably socialist perspectives. Criticism of private property and privately owned business is usually accompanied by criticism of the capitalist system entirely. Socialists often argue that within a capitalist system, economic activity is uncoordinated and serves the interest of a small business class as opposed to society as a whole. This results in stifled advancement and an 'anarchy of production'. Marxists criticize private business, along with capitalism, as being a form of
exploitationThis article discusses the term exploitation in the meaning of using something in an unjust or cruel manner.- As unjust benefit :In political economy, economics, and sociology, exploitation involves a persistent social relationship in which certain persons are being mistreated or unfairly used for...
that serves to extract the surplus value from the workforce and distribute it to passive owners (the capitalist class) in the form of
profitIn accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
. Because of this exploitation, the workers do not receive the full product of their labor and are forced, by the conditions imposed upon them by capitalism, to sell their labor to business owners in order to make a living. Socialists typically argue for public ownership of the means of production, with Marxian socialists advocating more direct collective worker-ownership of business enterprises with democratic worker management. Other critics of private property include technocrats, some forms of
economic nationalismEconomic nationalism is a term used to describe policies which emphasize domestic control of the economy, labor and capital formation, even if this requires the imposition of tariffs and other restrictions on the movement of labor, goods and capital. It opposes globalization in many cases, or at...
, anarchists and proponents of
economic democracyEconomic democracy is a socioeconomic philosophy that suggests a shift in decision-making power from a small minority of corporate shareholders to a larger majority of public stakeholders...
, who believe power and economic decision-making should be spread among as many people as opposed to being concentrated into the hands of a few.
India
In
IndiaIndia , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, the term
private limited (abbreviated: Pvt. Ltd.) is used after a name of a company which is privately held unlike public companies which use the word
limited only.
See also
- Private company limited by shares
A private company limited by shares, usually called a private limited company , is a type of company incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth countries and the Republic of Ireland...
(private limited company)
- Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
- Public company
This is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
- Unlimited company
An unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital but where the liability of the members or shareholders is not limited - that is, its members or shareholders have a joint, several and unlimited obligation to meet any...
External links