Definition of private company
Also known as private corporation, private company, is a company whose shares are not traded in the open market. The ownership of the company is private which is a reason why it is not required to meet the necessary rules of public companies. The stocks can be issued and the company can have shareholders but these shares are restricted only to the company and company holders and not given out for the public.
Features of private company
A private company being a private company is an officially authorized unit by the Government. There is comparatively limited accountability to the owners when compared to public company. The private company can carry out their business needs as per their own rules and regulations and can have its own name. There has to be a representative to the company that would carry out all the legal obligations of the company, but he would do only that and nothing else. He is just responsible as a representative.
Benefits of private company
Running a private company has plenty of benefits. They are:
- Private Companies are not liable to the Securities and Exchange Commission. Private companies do not have to present their trade to the Securities and Exchange Commission.
- Many federal and legal expenses can be avoided when you run a private company.
- Private companies can recommend shares to its owners, or concerned managers or people who know them while Public Corporation has to provide these shares to the public only.
Disadvantages of private companies
There can be plenty of disadvantages of private companies:
- Limited offering of stocks to people known can reduce the chance of the company to earn many profits.
- The selling of stocks would be pretty limited; the company cannot have as many advantages as a Public Corporation would.
Being a private company can have its own set of advantages, but converting your public company to a private company can cost you quite a lot, giving you a lot of challenges as a company, like buying back the stock that has been bought by investors and re-invest it in your company.
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- Debt Service Coverage Ratio
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