Privately Held Companies
- You and a few friends start a successful online business selling eco-friendly products.
- As the business grows, you face a decision: should you keep the company private or go public to raise more money?
What Are Privately Held Companies?
Definition
Privately held companies
Privately held companies are businesses owned by a small group of shareholders, such as families, founders, or private investors.
Unlike publicly held companies, their shares are not traded on public stock exchanges.
Key Features of Privately Held Companies
1. Limited Liability
- Shareholders are protected by limited liability, meaning they can only lose the money they invested in the company.
- Their personal assets are not at risk if the business faces financial difficulties.
- Imagine a family-owned restaurant operating as a privately held company.
- If the restaurant incurs debts, the owners' personal savings or property remain protected.
2. Restrictions on Share Transfers
- Shares in privately held companies cannot be freely sold or traded.
- Transfers often require approval from other shareholders, ensuring control remains within a trusted group.
A family business might restrict share sales to family members only, preventing outsiders from gaining ownership.
3. No Public Disclosure Requirements
- Privately held companies are not required to disclose financial information publicly.
- It allows them to maintain privacy over their operations and strategies.
4. Fewer Regulatory Requirements
- These companies face fewer regulations compared to publicly held companies.
- It reduces administrative burdens and costs.
Why Do Businesses Choose to Remain Private?
1. Control and Flexibility
- Owners retain full control over decisions.
- In such cases, there is no interference from external shareholders or public scrutiny.
A tech startup might prefer to stay private to make quick decisions on product development without seeking shareholder approval.
