PRIVATE COMPANY: CHARACTERISTICS, TYPES, ORGANIZATION CHART, EXAMPLES - ECONOMY - 2025

A private company is a commercial company owned by non-governmental organizations, or by a relatively small number of shareholders or members of the company, who do not offer or trade their shares to the general public on stock exchanges.

Private companies can issue shares and have shareholders, but their shares are not listed on public exchanges and are not issued through an initial public offering.

Source: pixabay.com

Instead, the company's shares are privately offered, traded, or exchanged. A more imprecise term used for a private company is an unlisted company.

As a result, private companies do not need to comply with the strict reporting requirements of the Securities and Exchange Commission for public companies. In general, the shares of these businesses are less liquid and their valuations are more difficult to determine.

Although they are less visible than their publicly traded counterparts, private companies are highly important in the global economy. According to Forbes, in 2008, the 441 largest private companies in the United States employed 6.2 million people.

Financing

Private companies vary in size and scope, encompassing millions of individually owned businesses around the world.

Although private companies have access to bank loans and certain types of equity funds, public companies can often sell their shares or raise money through bond offering, more easily.

If a small private business needs to raise outside money to grow, the next round of funding often comes from venture capital firms that specialize in providing capital for high-risk, high-reward opportunities.

Another option is to obtain financing from a few large institutional investors through a private placement.

If a private company grows large enough, it may eventually decide to go public, which means that it will issue shares through an initial public offering so that the shares are then traded on public stock exchanges.

characteristics

A private company refers to a commercial company that is owned by private investors, usually collectively, although it may be owned by a single individual. This is in contrast to state institutions and government agencies.

The objective of the private company is different from that of other entities, the main divergence being that private companies exist solely to generate profits for the owners or shareholders. A private company is a form that you can have private property.

Private companies generally have less comprehensive reporting requirements and transparency obligations, through annual reports, etc. than listed companies.

By not being required to disclose details about their operations and financial perspectives, private companies are not required to disclose information that could be valuable to competitors.

With limited reporting requirements and shareholder expectations, private companies have greater operational flexibility by being able to focus on long-term growth, rather than quarterly earnings. This allows you to take important action without delay.

Restrictions

Private companies sometimes have restrictions on the number of shareholders they can have. For example, the US Securities Exchange Act of 1934 limits a private company to fewer than 2,000 shareholders.

In Australia, section 113 of the Companies Act 2001 limits a private company to fifty shareholders who are not employees of the company.

Why do companies stay private?

The high cost of undertaking an IPO is one reason many small businesses remain private.

Public companies also require greater disclosure and must publicly disclose financial statements and make other presentations on a regular schedule.

Another reason companies stay private is to preserve family ownership.

Staying private means that a company does not have to answer to its public shareholders or elect different members to the board of directors.

Some family businesses have gone public, and many retain family ownership and control through a dual-class share structure, which means that family shares may have more voting rights.

The final step for private companies is to go public. However, going public costs money and takes time for the company to establish itself.

Types

Sole proprietorship

A sole proprietorship is a business that is owned by one person. The owner may operate on her own or may employ others.

The business owner has full and unlimited personal liability for the debts incurred by the business. Assets, liabilities, and all financial obligations rest entirely with the individual owner. For this reason, this form is often relegated to small businesses.

While this gives full individual control over decisions, it also increases risk and makes it more difficult to raise money.

Association

A partnership is a form of business in which two or more people operate with the common goal of making a profit. Each partner has total and unlimited personal responsibility for the debts contracted by the company.

They share the unlimited liability aspect of sole proprietorships, but include at least two owners.

There are three different types of classification for partnerships: general partnerships, limited partnerships, and limited liability partnerships.

Corporation

A corporation is a commercial entity for profit, limited or unlimited liability, which has its own legal personality, separate from its members.

A corporation is owned by one or more shareholders and is overseen by a board of directors, which hires the company's senior staff.

Corporate models have also been applied to the state sector in the form of public corporations. A corporation can be private, that is, closed, held by a few people, or publicly listed.

S corporations and C corporations are similar to public companies with shareholders. However, these types of companies can remain private and do not need to file quarterly or annual financial reports.

S corporations cannot have more than 100 shareholders and do not pay taxes on their earnings. C corporations can have an unlimited number of shareholders, but are subject to double taxation.

General organization chart

A private company needs as much management as a public company. Whatever its scale of expansion, every private company needs managers at different levels and departments to ensure that day-to-day operations are carried out properly.

To understand the general organization chart of a private company, you have the following information:

Managing Director

It is the highest managerial position in the organization chart of private companies. Therefore, he is the head of administration and makes the main decisions for the company.

In most private companies the CEO is the owner, responsible for the profit and loss incurred by the company. All other managerial positions are under the jurisdiction of the CEO.

Sales and Marketing Management

Of all the departments in a private company, the sales and marketing department is very important. Sales and marketing management is crucial to the success of the business. The hierarchy of this department is described below:

- Sales Manager.

- Assistant to the sales manager.

- Marketing Manager.

- Assistant Marketing Manager.

- Advertising and promotions manager.

- Regional Assistant Managers

- Regional administrators

Production management

Production management is also an important managerial aspect of any private company.

Exceptional administrative skills are needed to coordinate the activities of the production and distribution departments. The following is the organization chart of responsibilities:

- Production manager.

- Production manager.

- Assistant to the production manager.

- Quality control manager.

- Logistics manager.

- Warehouse manager.

- Purchasing manager.

- Transportation manager.

Finance and accounting management

Financial management is vital for the functioning of any organization and especially for private companies. To manage accounts and finances, private companies hire the following employees:

- Finance manager.

- Accounting manager.

- Assistant to the finance manager.

- Accounting assistant.

- Financial and accounting analysts.

Human resources management

Personnel management is the responsibility of the human resources department in a private company.

Human resource executives are responsible for hiring, recruiting, paying salaries, maintaining relationships with employees, and training staff. These are the jobs within this area:

- Human resources manager.

- Assistant human resources manager.

- Recruitment manager.

- Payroll manager.

- Secretary.

Office management

Every private company has several office spaces, from where employees work. Proper office management is important to ensure a smooth working environment with maximum productivity.

- Office director.

- Security manager.

- Shipping manager.

Differences with public companies

In a public company, the shares are made available to the public. These are traded on the open market through the stock exchange.

A private company is a corporation whose shares are not traded on the open market, but are held internally by a few individuals.

Many private companies are rigidly controlled, which means that only a few people own shares.

A private company can decide to become a public company, but it is not so easy for a public company to become private. This requires that the shares be repurchased and that the corresponding regulatory processes be followed.

Some companies are kept private by choice. Thus, your management has more room for maneuver to make decisions, without the public or regulators monitoring them.

However, this freedom also means that private companies can be riskier operations, because they are subject to less supervision.

Advantages and disadvantages

Since public companies are sold to the public, they are subject to many regulations and reporting requirements to protect investors. Annual reports must be public and financial statements must be made quarterly.

Public companies are under public scrutiny. The operations, the price of the actions are analyzed, and the activities of the members of the board are observed.

Private companies enjoy a certain anonymity. The board of directors can be small, sometimes made up of all the shareholders. Decisions can be made quickly and the board can adapt quickly to changing conditions.

Arriving at a correct valuation of a private company is much more difficult than for a public company. Since stocks are not traded often, it is difficult to determine how much a private company is worth.

The advantage of a public company is that the capital investment is shared by a large number of shareholders. Corporate debts will have to be paid, but shareholders do not have to pay them in bankruptcy.

Actions of the company

Shares in private companies are often illiquid, which means that it can take a lot of effort to find buyers for shares in this type of company.

This is important if an owner wants to get out of the business and sell his shares. Many times, calculating the price of the shares becomes an individual negotiation with who wants to buy the shares.

The value of each share is known in a public company. Consequently, it is easier to buy and sell stocks. In a private company it is not so simple to determine the value of the shares.

Because the shares are not available to the public, a private company does not need to file the same documentation with the Securities and Exchange Commission as publicly traded companies.

Therefore, this makes the financial position and operation of a private company less transparent.

Examples of private companies

According to Forbes, in 2014, a total of 221 private companies in the US had revenues of at least $ 2 billion. The same magazine also reported that, in 2008, the 441 largest private companies in the United States employed represented $ 1.8 trillion in revenue.

Some of the most famous companies in the world are private companies, such as Facebook, Ikea, and the candy maker Mars (Mars Bars).

Many of today's largest private companies have been owned by the same families for several generations, such as Koch Industries, which has remained in the Koch family since its founding in 1940.

Even US firms like Deloitte and PricewaterhouseCoopers, with more than $ 15 billion in annual revenue, come under the umbrella of being private companies.

Some very large corporations have remained private. For example, food producer Cargill is the largest private company in the United States. Some other examples of private family companies are:

- Chik-fil-A.

- State Farm and several other insurance companies.

- Dell computers.

- Publix supermarkets.

- John Lewis Partnership (retailer) or Virgin Atlantic (airline) in the UK.

References

1. Wikipedia, the free encyclopedia (2018). Privately held company. Taken from: en.wikipedia.org.
2. Investopedia (2018). Private Company. Taken from: investopedia.com.
3. The Balance Small Business (2018). Public Company vs. Private Company - What's the Difference? Taken from: thebalancesmb.com.
4. Investing Answers (2018). Private Company. Taken from: investinganswers.com.
5. Hierarchy Structure (2018). Private Company Management Hierarchy. Taken from: hierarchystructure.com.
6. Market Business News (2018). What is a private company? Definition and meaning. Taken from: marketbusinessnews.com.