Definitions

closely-held

Privately held company

The term privately held company refers to ownership of a business company in two different ways: first, referring to ownership by non-governmental organizations; and second, referring to ownership of the company's stock by a relatively small number of holders who do not trade the stock publicly on the stock market. Because of these two different meanings, the use of the term should normally be avoided unless the context makes clear which definition is intended. Less ambiguous terms for a privately held company are unquoted company and unlisted company.

Though less visible than their publicly traded counterparts, private companies have a major importance in the world's economy. In 2005, the 339 companies on Forbes' 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 only 305.

Koch Industries, Bechtel, Cargill, Chrysler, PricewaterhouseCoopers, Flying J, Ernst & Young, Publix, and Mars are among the largest privately held companies in the United States. IKEA, Victorinox, and Bosch are examples of Europe's largest privately held companies.

State ownership vs. private ownership

In the broadest sense, the term privately held company 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 company is generally taken to mean one whose ownership shares or interests are not publicly traded. 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 businesses are privately held. In the United States a few notable large corporations, such as Koch Industries, HEB, Cargill, Swagelok, Wegmans, Kohler, Mars, and Bechtel are privately held, as are large law firms.

Subsidiaries and joint ventures of publicly-traded companies (for example, General Motors' Saturn Corporation), unless shares in the subsidiary itself are traded directly, share 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 corporations, limited companies, limited liability companies, 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 proprietorships 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 shares in the United Kingdom (abbreviated Ltd) and the proprietary limited company (abbreviated Pty Ltd) in Australia.

Reporting obligations and restrictions

Privately held companies generally have fewer or lesser reporting requirements for transparency, via annual reports, etc. than do publicly traded companies. For example, in the United States, unlike in Europe, private companies are not generally required to publish their financial statements. In Australia, Part 2E of the Corporations Act 2001 requires that public companies file certain documents relating to their annual general meeting with the Australian Securities and Investments Commission, while there is no similar requirement for private companies.

Private companies also sometimes have restrictions on how many shareholders they may have. For example, the U.S. Securities Exchange Act of 1934, section 12(g), limits a private company, generally, to fewer than 500 shareholders, and the U.S. Investment Company Act of 1940, requires registration of investment companies that have more than 100 holders. In Australia, section 113 of the Corporations Act 2001 limits a private company to fifty non-employee shareholders.

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