Privately held company facts for kids
A private company is a business that is owned by individuals or a small group, not by the general public. Unlike public companies, you can't buy shares of a private company on a stock market. Instead, ownership is traded privately, often among the founders, their families, or a few investors. These companies are sometimes called "unlisted" or "unquoted" because their shares aren't listed on a public exchange.
Private companies are very important to the world's economy. Even though they might not be as famous as big public companies, they create many jobs and generate a lot of money. For example, in 2008, hundreds of large private companies in the United States contributed trillions of dollars to the economy and employed millions of people.
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What is a Private Company?
A private company is a business where the ownership, usually in the form of shares, is not sold to the public. This means that regular people cannot buy a piece of the company on a stock market. Instead, these shares are owned by a small number of people.
Often, the people who started the company, their families, or a small group of investors own most of the shares. Sometimes, even the employees of the company can own a part of it. Most small businesses you see, like your local bakery or a family-owned restaurant, are private companies.
Private vs. Public Companies
The main difference between a private company and a public company is how their ownership is shared.
- Private companies keep their ownership among a small group. Their shares are not available for everyone to buy.
- Public companies sell their shares to anyone who wants to buy them on a stock market. This allows many people to invest in the company.
There are also companies owned by the government, called state-owned enterprises. Private companies are different because they are owned by individuals or groups, not by the government.
How Private Companies are Organized
Private companies can be set up in different ways, depending on the country and how the owners want to run the business. Here are some common types:
Sole Proprietorship
A sole proprietorship is the simplest type of business. It is owned and run by just one person. This owner is fully responsible for all the business's debts. Many small businesses start this way.
Partnership
A partnership is when two or more people own and operate a business together. They share the profits and also the responsibility for any debts. There are different kinds of partnerships, some where all partners share full responsibility, and others where some partners have limited responsibility.
Corporation
A corporation is a more formal type of business. It is seen as a separate "person" in the eyes of the law, distinct from its owners. This means the owners (called shareholders) usually have "limited liability". This protects their personal money if the business gets into debt. A corporation is managed by a board of directors and a team of managers. Even if a corporation is privately owned, it still follows this structure.
Hybrid Types
Some countries have created business types that mix features of partnerships and corporations. For example, in the United States, there are Limited Liability Companies (LLCs). These offer owners the protection of limited liability, like a corporation, but are often taxed more simply, like a partnership.
In India, private companies must register with the government and include "Private Limited" at the end of their name.
Why Companies Choose to Stay Private
Private companies often have more freedom and privacy than public companies.
Fewer Reporting Rules
Private companies usually don't have to share as much detailed financial information with the public. This means they don't have to publish their financial statements for everyone to see. This can be good because it keeps important business secrets away from competitors. It also means they don't have to worry as much about what investors think of their performance every three months.
Focus on Long-Term Goals
Because private companies don't have to please public shareholders who often want quick profits, they can focus on plans that take a long time to develop. They can make decisions that are best for the company's future, even if those decisions don't show big profits right away.
More Control for Owners
The owners of a private company have more control over how the business is run. They don't need to get approval from many different shareholders for big decisions. This allows them to act quickly and make changes without delays.
To remain private, companies often have rules about how many owners (shareholders) they can have. For instance, in the United States, a private company generally cannot have more than 2000 shareholders. In Australia, the limit is usually 50 non-employee shareholders. These limits help keep the company's ownership private and concentrated.
Private Companies and the Economy
Private companies are a huge part of the "private sector" of an economy. This means they are businesses owned by individuals or groups, rather than by the government.
In an economic system called capitalism, private businesses are the main engine of the economy. The profits made by these businesses are controlled by their owners. This is different from socialism, where industries are often owned by the government or the community as a whole.
Sometimes, a company that was owned by the government is sold to private owners. This process is called privatization.
See also
In Spanish: Empresa privada para niños
