What is a Privately Held Company?
A Privately Held Company is a company that is wholly owned by individuals or corporations and does not offer equity interests in the company to investors in the form of stock shares traded on a public stock exchange. A company in the “private sector” refers to non-government-owned businesses, and includes both privately held (non-traded) and publicly traded (offering stock shares traded on an exchange) companies.
Examples of a privately held company
There are many more privately held companies than public companies in existence. While extremely large businesses tend to become publicly traded at some point (to access capital markets and gain liquidity), there are many well-known private companies.
Well-known private companies include:
- Koch Industries
- Deloitte (one of the Big Four accounting firms)
- C. Johnson
- Ernst & Young (E&Y, Big Four)
- PricewaterhouseCoopers (PwC, Big Four)
How to start a privately held company
If you wish to start your own company, the resources below will be a great place to begin. Starting a privately held company in the U.S., Canada, and other countries is quick and easy, while in other countries such as India and China it is more challenging.
Here are country-specific information resources for starting a private company:
Types of privately held companies
There are various types of private company structures, each of which offers its own advantages and disadvantages. The most common types are Corporation, Limited Liability Partnership (LLP), Sole Proprietorship, and Non-Profit Organization. These types vary in their specific definitions and structures by country, but in most countries, a corporation is the most commonly used company structure.
Risks of ownership
Owning shares in a private company poses many risks. While all investments are risky, owning shares in a private business entails some unique risks, such as the following:
- Lack of liquidity (since shares do not trade on a public exchange)
- Challenging to value (private company valuation and financial modeling exercises pose challenges due to less readily available information)
- Governance issues (many private businesses lack the corporate governance structures that are in place in public companies)
- Personal liability (owners of private companies typically need to pledge personal assets as collateral to get financing from banks)
CFI’s mission is to help you advance your career in the financial industry. With that goal in mind, these additional resources will be helpful: