The term privately held company refers to ownership of a business company in two different ways—first, referring to ownership by non-governmental organizations; and second, referring to ownership of the company's stock by a relatively small number of holders who do not trade the stock publicly. Because of these two different meanings, the use of the term should normally be avoided unless the context makes clear which definition is intended.
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State ownership vs. private ownership
In the broadest sense, the term privately held company 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 company 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. In the United States a few notable large corporations, such as Koch Industries, HEB, Cargill, Swagelok, Kohler, Mars, and Bechtel are privately held, as are large law firms. Subsidiaries and joint ventures of publicly-traded companies (for example, General Motors' Saturn Corporation) are not considered to be privately-held companies, even if shares in the subsidiary itself are not traded directly. Such companies are effectively subjected to the same reporting requirements of their parent companies.
Form of organization
Private companies may be called corporations, limited liability companies, partnerships, sole proprietorships, business trusts, or other names, depending on where and how they are organized. Different jurisdictions have varying laws that call business entities by different names. Each of these categories may have additional requirements and restrictions that may impact income tax liabilities, governmental obligations, employee relations, marketing opportunities and other business decisions.
Reporting obligations and restrictions
Privately held companies generally have fewer or lesser reporting requirements for transparency, via annual reports, etc. than do publicly traded companies. For example, Part 2E of the Australian Corporations Act 2001 requires that public companies file certain documents relating to their annual general meeting with the Australian Securities and Investments Commission, while there is no similar requirement for private companies. Private companies also sometimes have restrictions on how many shareholders they may have. For example, section 113 of the Corporations Act 2001 limits a private company to fifty non-employee shareholders. Another example is the US Securities Exchange Act of 1934, section 12(g), which limits a private company, generally, to fewer than 500 shareholders, and the US Investment Company Act of 1940, which requires registration of investment companies that have more than 100 holders.
