Privately held company

• 1. Introduction

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  A privately held company is a company whose shares are not offered to the public or traded on any listed market. Instead, ownership passes hands quietly, in private deals known as over-the-counter transactions. You will not find these companies ringing a bell on the floor of a stock exchange. Yet in 2008, the 441 largest private companies in the United States alone accounted for $1.8 trillion in revenues and employed 6.2 million people, according to Forbes. That is a staggering footprint for businesses that most people could not name. Who actually owns these companies? What rules govern them? And why would any entrepreneur deliberately choose to stay out of the spotlight? Those are the questions this documentary sets out to answer.

• 2. Who Holds the Shares

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  Private companies most often belong to founders, their families and heirs, or a tight circle of investors. Sometimes employees also hold stakes. Most small businesses in the world operate this way. Subsidiaries of publicly traded companies occupy an interesting middle ground. General Motors' Saturn Corporation is one example the record notes. Unless a subsidiary's own shares are separately traded, it carries characteristics of both a private and a public company. Its assets and liabilities flow into the parent company's reports, following accountancy and securities rules that govern groups of companies. That layered structure means the line between private and public is not always as clean as it first appears.

• 3. The Many Names for Private

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  In the United Kingdom, the private company limited by shares carries the familiar abbreviation Ltd. In South Africa and Australia, the equivalent is the proprietary limited company, abbreviated Pty Ltd, or the unlimited proprietary company, abbreviated simply Pty. India adds its own requirement: private companies registered with the Registrar of Companies, which sits under the Ministry of Corporate Affairs, must include the words Private Limited at the end of their names. In the United States, the term private company also extends to partnerships, sole proprietorships, and business trusts, a practice that is not generally followed in the United Kingdom. Germany created a hybrid entity called the Gesellschaft mit beschrankter Haftung, known by the initials GmbH, which behaves like a corporation but is taxed like a partnership. The United States equivalent is the Limited Liability Company, and the United Kingdom equivalent is the Limited Liability Partnership.

• 4. Secrecy as Strategy

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  Private companies in the United States are not generally required to publish their financial statements. That absence of mandatory disclosure carries real strategic weight. A company that does not have to reveal its earnings, debts, or operational plans cannot be forced to hand that information to competitors. When a business encounters financial difficulty, the lack of required public reporting also means there is no automatic mechanism for eroding customer or stakeholder confidence. Private executives can also act without shareholder approval, which removes delays that can slow publicly traded companies during critical decisions. The tradeoff is reduced access to capital markets, but many owners find the freedom from quarterly earnings pressure worth it. With no obligation to satisfy Wall Street's short-term expectations, a private firm can concentrate on long-term growth instead.

• 5. Rules and Limits

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  Fewer reporting requirements does not mean no requirements at all. In Australia, Part 2E of the Corporations Act 2001 requires publicly traded companies to file certain documents with the Australian Securities and Investments Commission, known as ASIC, relating to their annual general meeting. Large proprietary companies in Australia face a similar obligation, submitting Form 388H containing their financial report to ASIC. Section 113 of the same Corporations Act 2001 limits an Australian privately held company to 50 non-employee shareholders. In the United States, section 12(g) of the Securities Exchange Act of 1934 generally restricts a privately held company to fewer than 2,000 shareholders. A separate law, the Investment Company Act of 1940, requires registration of investment companies that exceed 100 holders. In the United Kingdom, all incorporated companies must register centrally with Companies House, giving the public a single point of access to basic company records.

• 6. Finding Private Company Data

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  Researching a private company's finances in the United States requires some legwork. One route is contacting the secretary of state for whichever U.S. state the company was incorporated in, or the state of formation for an LLC or partnership. Specialized databases such as Dun & Bradstreet also aggregate private company information, segmented by industry code. Other data providers offer their own compilations of privately held company information. The United Kingdom takes a more centralized approach: Companies House holds records on all incorporated companies, public and private alike. For investors and journalists trying to understand a privately held business, these channels are often the only windows available. A close company in the United Kingdom adds another layer of distinction. It is defined as a company controlled by five or fewer shareholders, or by shareholders who are also directors.