# Understanding Private Companies: Ownership, Types, and Characteristics

> **Definition**
>
> A private company is a privately owned business that does not trade its shares on public exchanges and is not subject to the same regulatory requirements as public companies.

## What Is a Private Company?

A private company is a business owned by private individuals or groups rather than the public. It can issue stock, but not through public exchanges. It also faces fewer regulatory requirements compared to public companies. Private companies often take forms like sole proprietorships, partnerships, or limited liability companies (LLCs). Being private offers advantages like less regulation and greater control for owners, but it can also make raising capital more challenging. Examples range from small family-owned businesses to large influential companies like Cargill or Koch Industries.

### Key Takeaways

*   Private companies are owned privately, and their shares are not traded on public exchanges.  
    
*   Unlike public firms, private companies don't need to file with the SEC, making them less transparent.  
    
*   Types of private companies include sole proprietorships, partnerships, LLCs, S corporations, and C corporations.  
    
*   While private firms can avoid costly IPOs, they often find it difficult to raise capital.  
    
*   Ownership responsibility and decision-making power rest heavily on the private company's owner(s).

![Private Company](https://www.investopedia.com/thmb/4Jl1pd9PRZxQ3kUPJWYB8OExI8c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/privatecompany_V2-e571ead148b643c7906455c312fb6d25.jpg)

*— Investopedia / Jake Shi*

## Understanding How Private Companies Operate

Private companies are sometimes referred to as privately held companies. They range from millions of small businesses in the U.S. to dozens of [unicorn](https://www.investopedia.com/terms/u/unicorn.asp) startups worldwide. Private companies have different rules for [shareholders](https://www.investopedia.com/terms/s/shareholder.asp), members, and taxation. In 2024, U.S. firms such as Cargill and Koch Industries, with large annual revenues, fall under the private company umbrella.

Remaining a private company can make raising money difficult. This is why many large private firms choose to go public through an IPO. While private companies access bank loans and [certain equity funding](https://www.investopedia.com/private-credit-vs-private-equity-7565530), public companies can often sell shares or raise money through bond offerings.

## Exploring Different Types of Private Companies

*   **Sole Proprietorship:** This is an unincorporated business that puts company ownership in the hands of one person. A [sole proprietorship](https://www.investopedia.com/terms/s/soleproprietorship.asp) is not a separate legal entity. Its assets, liabilities, and financial obligations fall completely onto the individual owner. While this gives the individual total control over decisions, it also raises risk. The owner of the company files no corporate taxes. Rather, they report business income and expenses on their personal income [tax returns](https://www.investopedia.com/terms/t/taxreturn.asp).
*   **Partnerships:** These businesses have at least two owners. [Partnerships](https://www.investopedia.com/terms/p/partnership.asp) share the unlimited liability aspect of sole proprietorships.
*   **Limited Liability Company (LLC):** This business often has multiple owners who share ownership and liability. A [limited liability company (LLC)](https://www.investopedia.com/terms/l/llc.asp) merges some of the benefits of partnerships and corporations, including [pass-through income](https://www.investopedia.com/terms/f/flow-through.asp) taxation and limited liability without having to incorporate.LLCs provide owners with protection against personal liability and regulations for LLCs vary by state.
*   **"S" and "C" Corporations:** [S corporations](https://www.investopedia.com/terms/s/subchapters.asp) and [C corporations](https://www.investopedia.com/terms/c/c-corporation.asp) are similar to public companies with shareholders. However, these companies can remain private and do not submit quarterly or annual financial reports. S corporations can have no more than 100 shareholders and are not taxed on profits. C corporations can have unlimited shareholders but are subject to double taxation.

> **Fast Fact**
>
> Some family-owned companies have gone public, and many maintain family ownership and control through a dual-class share structure, meaning family-owned shares can have more voting rights.

## Pros and Cons of Being a Private Company

Companies often [stay private](https://www.investopedia.com/companies-opting-out-of-stock-market-11757107) due to high costs and strict regulations. Remaining private helps companies save on IPO costs, avoid paperwork like [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp), and not disclose their progress to the public.

Private ownership allows company owners, especially in family-run businesses, to keep more control. Koch Industries has remained in the [Koch family](https://www.investopedia.com/insights/companies-owned-koch-brothers/) since its founding in 1940. While there are advantages to being private, these companies may struggle to raise [capital](https://www.investopedia.com/terms/c/capital.asp). Unlike public companies, private entities don't trade on public [stock exchanges](https://www.investopedia.com/articles/basics/04/092404.asp).

Owners may be liable for their private company's financial health. When a private company faces financial difficulties, the owner may be held responsible for debt and other financial [obligations](https://www.investopedia.com/terms/o/obligation.asp). This can harm the owner's [credit scores](https://www.investopedia.com/terms/c/credit_score.asp), especially if the company [defaults](https://www.investopedia.com/terms/d/default2.asp).

Pros

*   Avoid high costs of going public
    
*   Avoid regulatory paperwork and hurdles
    
*   No need for public disclosure
    
*   Retain control
    

Cons

*   Raising capital may be difficult
    
*   Financial liability falls on owner(s)  
    
*   Potential for disagreements and conflicts among partners
    

## Comparing Private Companies and Public Companies

Unlike private companies, public entities abide by the rules outlined by financial regulators, such as the SEC. This means they must be fully [transparent](https://www.investopedia.com/terms/t/transparency.asp) and file paperwork at regular intervals. These documents include quarterly and annual reports, proxy statements, changes in beneficial ownership, and income statements.  

## What Are Examples of Private Companies?

Koch Industries, Cargill, Deloitte, IKEA, and Ernst & Young are all private companies. In 2022, X (formerly Twitter) was public until [Elon Musk](https://www.investopedia.com/articles/personal-finance/061015/how-elon-musk-became-elon-musk.asp) bought it and took the company private.

## What Is the Average Size of a Private Company?

Private companies range in size from small businesses to large corporations. They include a small "mom-and-pop" convenience store or dry cleaner, and mid-sized and large corporations.

## How Does Ownership of a Private Company Differ from a Public Company?

Public companies are the opposite of private companies. Ownership of public companies is divided into [shares](https://www.investopedia.com/terms/s/shares.asp), which are sold to the public. This is first done through an IPO. Once that is complete, the shares of a public company are sold on the [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp) through stock exchanges. A public company's equity is held by insiders and outside investors.

## The Bottom Line

Private companies are owned privately and not listed on public stock exchanges. They can be sole proprietorships, partnerships, LLCs, S corporations, and C corporations. Being private allows owners to avoid the high costs and regulatory requirements of going public, and they also retain greater control over their business. But private companies may face challenges in raising capital, and their owners may bear financial liabilities. Private companies have fewer regulatory obligations and less transparency compared to public companies. Well-known examples include Koch Industries and Cargill.

> **Article Sources**
>
> 1.  Statista. "[America's Largest Private Companies](https://www.statista.com/chart/23592/largest-private-companies-us/)."
>     
> 2.  U.S. Small Business Administration. "[Choose a Business Structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure)."
>     
> 3.  U.S. Securities and Exchange Commission. "[Exchange Act Reporting and Registration](https://www.sec.gov/smallbusiness/goingpublic/exchangeactreporting)."
>     
> 4.  U.S. Securities Exchange Commission. "[Ex-99.3 4 Dex993.html Summary of Koch Industries History](https://www.sec.gov/Archives/edgar/data/41077/000119312505225697/dex993.htm)."
>     
> 5.  U.S. Securities and Exchange Commission. "[Twitter, Inc](https://www.sec.gov/Archives/edgar/data/1418091/000119312522120474/d310843ddefa14a.htm)."