What is a Privately Held Company?

A privately held company is a company which is held by a small group of private stockholders who do not trade their equity in the company in the public market. Frequently people make the mistake of assuming that such companies are small. In fact, some very large global companies such as Mars, Bosch, and Ikea are privately held companies, and together the world's largest privately held companies make up a great deal of the global market. There are, of course, also many small companies which are privately held.

Such companies are often family owned and operated. These companies may prefer to remain private so that family members can retain control over the company. Other privately held companies have different reasons for remaining private, and a privately held company also has the option of going public and becoming a publicly traded company on a stock exchange. Going public allows a company to tap into capital and may be done at a strategic time.

The key disadvantage of being a privately held company is that the company will not have rapid access to capital because it cannot sell stocks and bonds on the open market. This means that such companies need large reserves of funds to operate, or they need to be able to access private investors who can provide capital.

Also known as unlisted or unquoted companies, these companies are not subject to the same reporting and transparency requirements as public companies. A public company must disclose financial information and operate in a way which benefits its shareholders. This requirement is not in place for private companies. Companies like Mars which prefer to operate in secrecy see the lack of reporting requirements as a distinct benefit.

Not being held to accountability standards can also allow a privately held company to engage in unusual business practices, which are not necessarily inherently harmful. Companies can opt to pursue investments or lines of activity which might seem odd and wait for these activities to pay off, rather than feeling pressured by stockholders.

Many governments require privately held companies to keep stockholders below a set number. This is designed to prevent companies from operating effectively like public companies without any accountability. The requirements vary; some governments allow companies to have up to 500 stockholders before they are required to go public, while others restrict the number of stockholders a privately held company may have to a much lower maximum, like 50 or 100.