A private company (also called a privately held company) is a business that is owned by individuals, families, private investors, or a small group of shareholders and does not sell its shares on public stock exchanges. Private companies can issue equity to selected investors, but they do not conduct an initial public offering (IPO) and are not required to make the same public disclosures that exchange‑listed companies must provide (for example, SEC periodic filings). Because their shares are not publicly traded, private companies’ stock is generally less liquid and determining market value can be more difficult.
Key takeaways
– Private companies range from single‑owner small businesses to multi‑billion‑dollar global firms.
– They avoid public disclosure rules and IPO costs but typically face more limited capital-raising options.
– Legal structure (LLC, partnership, S corp, C corp) determines taxation and owner liability.
– Large private firms (e.g., Koch Industries, Cargill) can be very big and family‑controlled; many startups remain private until they need broader capital access.
Sources: Investopedia, U.S. Small Business Administration, U.S. Securities and Exchange Commission.
How private companies work
– Ownership and shares: Private companies can have shareholders and issue equity, but shares are distributed privately (to founders, employees, venture capital/private equity, or accredited investors) rather than through public markets.
– Governance: Governance is set by the company’s organizational documents (articles of incorporation, operating agreement, bylaws) and shareholder or member agreements. These documents typically specify voting rights, transfer restrictions, buy‑sell provisions, and management authority.
– Reporting and disclosure: Unlike public firms, private companies are generally not required to file periodic reports with the SEC. They do, however, have legal obligations to file tax returns and comply with state business regulations, and may need to produce financials for lenders or investors. (See SEC: Exchange Act reporting and registration.)
– Valuation and liquidity: Without a public market price, valuations depend on private funding rounds, comparable transactions, or appraisals. Share transfers are often restricted, limiting liquidity for investors and employees.
Types of private companies
– Sole proprietorships: One owner, simple formation, owner personally liable for business debts (common for small “mom‑and‑pop” shops).
– Partnerships and limited partnerships: Two or more owners; general partners have liability, limited partners are passive investors with limited liability.
– Limited liability companies (LLCs): Flexible structure, pass‑through taxation by default, limited liability for members.
– S corporations: Pass‑through taxation with ownership restrictions (limits on number and type of shareholders).
– Private C corporations: Separate legal entity; can issue stock classes, useful for fundraising and employee stock plans; corporate tax applies.
Source: U.S. Small Business Administration.
Fast fact
Millions of small businesses in the U.S. are privately held; at the same time, some of the world’s largest companies—like IKEA, Koch Industries, and Cargill—are private, showing private ownership spans the full size spectrum. (See Statista and Investopedia.)
Advantages of remaining private
– Less regulatory burden: No requirement for SEC periodic public reporting, proxy statements, or other public disclosures required of public companies.
– Lower direct costs: Avoid IPO underwriting fees, ongoing listing and compliance costs, and the time/expense involved in being public.
– Greater control: Founders and families can retain control (often via shareholder agreements or dual‑class shares in entities structured to support that).
– Long‑term strategy: Freedom to take a longer view on product development and investments without quarter‑to‑quarter public market pressure.
Disadvantages of remaining private
– Restricted capital access: Cannot easily tap public equity markets; rely on bank loans, private equity/venture capital, or reinvested earnings.
– Less liquidity for shareholders: Selling shares often requires approval or is limited to secondary transactions.
– Valuation opacity: No visible market price; valuations typically occur at fundraising rounds or through private appraisals.
– Potential personal liability: Depending on entity type (sole proprietorship, partnership), owners may be personally liable for business obligations. (Choice of entity matters.)
Private vs. public companies — the main contrasts
– Access to capital: Public companies can raise capital by selling shares broadly and issuing bonds to public markets; private firms use private investors and debt markets.
– Disclosure and regulation: Public companies must file regular detailed financial and governance disclosures with the SEC and meet exchange listing rules; private firms do not.
– Liquidity: Public shares are tradable on exchanges, providing straightforward liquidity; private shares are less liquid and transfers often require consent.
– Control: Private owners can more readily retain control; public companies often face more influence from outside shareholders and activist investors.
Examples of private companies
Notable private companies include Koch Industries, Cargill, IKEA, Deloitte, and Ernst & Young—firms that are large, sometimes family‑controlled, and not listed on public exchanges. Smaller private businesses include the many independently owned small businesses and startups that remain privately financed.
What is the average size of a private company?
There is no single “average” because the private company category includes very small sole proprietorships and very large multibillion‑dollar firms. Most U.S. businesses (by number) are small and privately held; but in revenue terms, private firms can include household names with billions in annual sales. For guidance on business structures by size, see the U.S. Small Business Administration.
How ownership differs between private and public companies
– Private: Ownership is concentrated among founders, families, private investors, or employees. Share transfers typically require approval, and governance is shaped by private agreements.
– Public: Ownership is dispersed among public investors; shares are transferrable on exchanges, and public shareholders have statutory rights (e.g., voting on certain matters) and access to disclosure. Public companies are accountable to a broader investor base and regulators.
Practical steps — starting and running a private company
If you’re starting a private company
1. Choose the right legal structure (sole proprietor, partnership, LLC, S corp, C corp): weigh liability, tax implications, and fundraising needs. (See SBA: Choose a business structure.)
2. Draft foundational documents: articles of organization/incorporation, operating agreement or bylaws, shareholder or member agreements that set transfer restrictions, buy‑sell clauses, and voting rules.
3. Register with state and local authorities: obtain required licenses/permits and register for taxes.
4. Open separate business bank accounts and maintain clean corporate records to preserve limited liability protection.
5. Create an initial capitalization plan: founder equity split, option pool for employees, and seed funding plan.
If you’re a private company seeking capital
1. Identify funding sources: personal funds, bank loans, venture capital, angel investors, private equity, strategic investors, or convertible instruments.
2. Prepare investor materials: concise pitch deck, financial projections, cap table, and clear use of proceeds.
3. Decide on terms and governance protections: anti‑dilution, board seats, liquidation preferences, and information rights. Use experienced counsel and negotiate term sheets carefully.
4. Plan for liquidity expectations: set expectations for investors and employees about when and how they can exit (secondary sales, acquisition, or IPO).
If you’re considering an IPO (going public)
1. Assess readiness: consistent audited financials, scalable governance and controls, strong management, and predictable operating metrics.
2. Engage advisors: investment banks, legal counsel, auditors, and investor relations professionals.
3. Implement public‑company controls: SOX‑like internal controls, board committees, and expanded disclosure processes.
4. Prepare timeline and budget: IPOs carry substantial fees (underwriting, legal, accounting) and ongoing public company costs.
5. Decide on structure to retain control (if desired): evaluate share classes and voting structures, understanding investor reception and regulatory considerations.
If you want to remain private but professionalize
1. Adopt formal governance: independent directors, regular board meetings, and audit/compensation committees as needed.
2. Prepare regular financial statements and consider voluntary audits to aid fundraising and lender relations.
3. Implement equity plans and clear transfer rules to retain talent and manage ownership changes.
4. Monitor compliance: tax filings, employment laws, and any industry‑specific regulations.
The Bottom Line
Private companies are a broad, diverse category from sole proprietors to massive family‑owned conglomerates. Remaining private gives owners more control and reduces public reporting burdens, but it limits capital access and liquidity. The optimal choice of remaining private or going public depends on each firm’s capital needs, growth plans, tolerance for disclosure and regulatory compliance, and the owners’ desire for control and liquidity.
Related resources
– Investopedia: What Is a Private Company?
– U.S. Small Business Administration: Choose a Business Structure
– U.S. Securities and Exchange Commission: Exchange Act Reporting and Registration
– Statista: America’s Largest Private Companies
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.