Privately Held Companies — Business Basics

Welcome to the first ‘Business Basics’ of the year! We are starting 2015 off strong by looking at privately held companies. The structure of privately held business is often misunderstood. People wonder what distinguishes a privately held company from a publicly one, or believe that any business run by a non-government entity constitutes a private company. That isn’t the case, and so to clear up any confusion, we’ve answered some of the more commonly asked questions we get about private companies. 

What is the difference between a privately held company, and a public one?

A privately held company is also known as a ‘closed company,’ because the ownership of the business is closed. In other words, you can’t just decide to buy a chunk of the business off of the market. If a privately held company has shareholders, they are limited, and stocks are not sold on the open market. Public companies, on the other hand, can publicly trade interest in the company on the stock exchange. And, while a little less visible than publicly owned companies, privately held businesses make up a substantial part of the economy as there are more private companies than public ones.

Do you have to do anything special to start a privately-held company?

Nope! Businesses are privately held by default. It’s just assumed the owner, or owners, will want full control of the company. And if a company wants to switch from private to public ownership, it has to be vetted by the SEC and have an initial public offering. The SEC actually has a handy guide for small businesses considering that option. However, publicly owned companies are beholden to much stricter reporting and transparency laws, so privately held companies are normally easier to run.

Can an LLC or Corporation be a privately held business?

Yes; like we said, a company is, by default, privately held. Sole-proprietorships, partnerships, LLCs, and Corporations can all be privately held businesses. It is up to the owner, or owners, to decide whether or not going public is right for them later on down the line. Both LLCs and Corporations can technically be publicly traded, though the vast majority of public companies are corporations. If and when you choose to incorporate or form an LLC, you should thus consider its future, and the future of its ownership structure.

Interested in forming a privately held business? Have any questions about the process? Give us a call at 1-877-692-6772!