Definition and examples of a private company
How do private companies operate?
Types of private companies
Private company vs. public company
Advantages and disadvantages of private companies
What does this mean for individual investors?
Definition and examples of a private company
A private company is a business that is not owned by the public. It does not issue publicly traded shares and relies more on funding sources such as individual savings and private investors or borrowing.
Private companies are often owned by individuals or families, but they can also be owned by private investors and shareholders.
While many private companies are small family-owned businesses, they can also include much larger companies. Notable companies that remain private include Koch Industries, Publix Super Markets, and Fidelity Investments.
How do private companies operate?
A private company does not issue public shares. Instead, it is owned by an individual, family, or a group of private investors. Private companies are characterized by two important features: how they raise capital and their reporting requirements.
First, private companies do not raise capital by issuing public stock and securities. Instead, all funding comes from private sources, including venture capital, private equity, suitable investors, and private borrowing.
Although private companies have fewer options for raising capital, there are many reasons a company might choose to stay private. First, the lack of reporting requirements is a strong argument. In recent years, there has been an increase in the amount of private funding available. Therefore, companies may not need to go public to acquire the capital necessary for growth.
Types of private companies
Sole proprietorship
Partnership
Limited liability company
Corporation
Private company vs. public company
Private company
Public company
Advantages and disadvantages of private companies
Advantages:
- Fewer reporting requirements
- Maintaining ownership
- More options for business structures
Disadvantages:
- Fewer options for raising capital
- Illiquid shares
- Less transparency for investors
What does this mean for individual investors?
Private companies do not issue public shares on exchanges, meaning you cannot simply buy shares in them through your brokerage account. However, being a private company does not necessarily mean it lacks investors and shareholders. These investors typically consist of venture capital and private equity firms. Thus, there is very little opportunity for the individual investor to participate.
Even if there is an opportunity to invest in a private company, there may be much greater risks for the individual investor. For example, investments like private equity tend to be illiquid, requiring investors to hold their money for a certain period of time. Additionally, unlike public companies, investors may have less access to financial information about the company.
Source: https://www.thebalancemoney.com/what-is-a-private-company-5187976
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