- Privately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock (shares) to the general public on the stock market exchanges, but rather the company's stock is offered, owned and traded or exchanged privately. 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 2008, the 441 largest private companies in the United States accounted for $1.8 trillion in revenues and employed 6.2 million people, according to Forbes. 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 305.
Koch Industries, Bechtel, Cargill, Chrysler, PricewaterhouseCoopers, Pilot Travel Centers, Ernst & Young, Publix, Deloitte Touche Tohmatsu, Hearst Corporation, S. C. Johnson, and Mars are among the largest privately held companies in the United States. IKEA, Trafigura, Jaguar Cars, J C Bamford Excavators (JCB), Land Rover, LEGO, Bosch, Rolex and Victorinox are some examples of Europe's largest privately held companies.
State ownership vs. private ownership
In the broadest sense, the term private corporation 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 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.
Subsidiaries and joint ventures of publicly traded companies (for example, General Motors' Saturn Corporation), unless shares in the subsidiary itself are traded directly, have 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, unlimited 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) or private unlimited company and the proprietary limited company (abbreviated Pty Ltd) or unlimited proprietary company (abbreviated Pty) in Australia.
Reporting obligations and restrictions
Privately held companies generally have fewer or less comprehensive reporting requirements for transparency, via annual reports, etc. than do publicly traded companies. For example, in the United States, unlike in Europe, privately held companies are not generally required to publish their financial statements. By not being required to disclose details about their operations and financial outlook, private companies are not forced to disclose information that may potentially be valuable to competitors and can avoid the immediate erosion of customer and stakeholder confidence in the event of financial duress. Further, with limited reporting requirements and shareholder expectations, private firms are afforded a greater operational flexibility by being able to focus on long term growth rather than quarterly earnings. In addition, private company executives may steer their ships without shareholder approval, allowing them to take significant action without haste. In Australia, Part 2E of the Corporations Act 2001 requires that publicly traded companies file certain documents relating to their annual general meeting with the Australian Securities and Investments Commission, while there is no similar requirement for privately held companies.
Privately held 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 privately held 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 privately held company to fifty non-employee shareholders.
Privately owned enterprise
A privately owned enterprise refers to a commercial enterprise that is owned by private investors, shareholders or owners (usually collectively, but they can be owned by a single individual), and is in contrast to state institutions, such as publicly owned enterprises and government agencies. Private enterprises comprise the private sector of an economy. An economic system that contains a large private sector where privately run businesses are the backbone of the economy is referred to as capitalism. This contrasts with socialism, where industry is owned by the state or by all of the community in common. The act of taking assets into the private sector is referred to as privatization. The goal of private enterprise differs from other institutions, the major difference being private businesses exist solely to generate profit for the owners or shareholders.
A privately owned enterprise is one form that private property may take.
Types of privately owned business
- Sole proprietorship: A sole proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has total and unlimited personal liability of the debts incurred by the business. This form is usually relegated to small businesses.
- Partnership: A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
- Corporation: A business corporation is a for-profit, limited liability or unlimited liability entity that has a separate legal personality from its members. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff. Corporate models have also been applied to the state sector in the form of Government-owned corporations. A corporation may be privately held (that is, close - that is, held by a few people) or publicly traded.
Privately owned businesses are typically divided into two subcategories: privately held companies and publicly traded companies. Publicly traded firms list their shares on the stock market, allowing for more diversified ownership as anyone who purchases their stock becomes a partial owner and is able to receive a portion of its profit. Despite the term "public" in its name, a publicly listed company does not entail public ownership because it is not owned by the whole society. It just means that shares of the company are for sale to anyone in the general public who wishes to purchase them. Publicly listed corporations may be partially owned by peacemakers.
Criticism of private business has come from many perspectives, most notably socialist perspectives. Criticism of private property and privately owned business is usually accompanied by criticism of the capitalist system entirely. Socialists often argue that within a capitalist system, economic activity is uncoordinated and serves the interest of a small business class as opposed to society as a whole. This results in stifled advancement and an 'anarchy of production'. Marxists criticize private business, along with capitalism, as being a form of exploitation that serves to extract the surplus value from the workforce and distribute it to passive owners (the capitalist class) in the form of profit. Because of this exploitation, the workers do not receive the full product of their labor and are forced, by the conditions imposed upon them by capitalism, to sell their labor to business owners in order to make a living. Socialists typically argue for public ownership of the means of production, with Marxian socialists advocating more direct collective worker-ownership of business enterprises with democratic worker management. Other critics of private property include technocrats, some forms of economic nationalism, anarchists and proponents of economic democracy, who believe power and economic decision-making should be spread among as many people as opposed to being concentrated into the hands of a few.
In India, the term private limited (abbreviated: Pvt. Ltd.) is used after a name of a company which is privately held unlike public companies which use the word limited only.
- Private company limited by shares (private limited company)
- Private equity
- Public company
- Unlimited company
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