A private company is a business owned privately. Private companies can have shareholders and issue stock, but they don’t go through an initial public offering (IPO) or trade on public exchanges. They are not required to file with the Securities and Exchange Commission (SEC). The shares of these companies are usually less easily bought and sold, and their worth is harder to determine.
How Private Company Works
Private companies are also known as privately held companies. They come in various sizes and types, including the numerous individually owned businesses in the United States and the numerous unicorn startups around the globe. Private companies have their own set of regulations for shareholders, members, and taxes. By 2024, prominent U.S. companies like Cargill and Koch Industries, which generate substantial annual revenues, will be classified as private companies.
Staying private can make it hard to raise funds, which is why many big private companies decide to go public with an IPO. Private companies can get bank loans and some equity funding, but public companies can sell shares or raise money with bonds.
Types of Private Company
- Sole Proprietorship
- Partnerships
- “S” and “C” Corporations
- Limited Liability Company (LLC)
Pros and Cons of Private Company
| Pros | Cons |
|---|---|
| Avoid high costs of going public | Raising capital may be difficult |
| Avoid regulatory paperwork and hurdles | Financial liability falls on owner(s) |
| No need for public disclosure | Potential for disagreements and conflicts among partners |
| Retain control |
Conclusion
Several multinational corporations such as IKEA, Ernst & Young, and X are privately owned. The owners of these companies have full control and are not accountable to regulatory authorities. However, these companies cannot generate funds for expansion or debt repayment through stock markets. They do not offer their shares to the general public.