A private company is a for-profit organization that is owned by private investors. Thus, the majority partner is not necessarily a person, but can also be another company, as long as it does not belong to the State .
In other words, a private company must be controlled by an individual or by an entity that is not part of the government. On the other hand, a public company is run by the State.
It should be clarified that one can speak of a private company in the sense that it is not listed on the stock exchange . That way, you are not required to share your financial information with potential investors, that is, with society in general.
Characteristic of the private company
The main characteristics of the private company are:
- It is a for-profit organization. That is, it develops an economic activity such as the production, distribution or sale of some good or service. This, with the objective of obtaining profits.
- It can become a public company if it is nationalized.
- It can be formed from the privatization of a public company or when the monopolythat the state has in a market is broken .
- You can compete with the public company.
- The fact that it is private does not mean that the company should not report to the authorities, especially when it comes to key activities for the development of the country such as education or health.
- It is obliged to pay taxes to the government and guarantee for its workers all the benefits established by law.
However, it should be clarified that we are talking about private companies for profit, as distinguished from foundations or NGOs. Could there be a private nonprofit company? Yes, but it wouldn’t make much sense.
Types of private company
There are mainly four types private company
- Sole proprietorship:It is an institution with only one owner and shareholder . This individual has full control over the organization and must respond to the financing acquired.
- Association:It is similar to the previous case, only that the firm is made up of two or more people. These must answer for the totality of the company’s financial obligations.
- Limited liability company:The shareholders are not personally liable for the company’s debt. Thus, they are only obliged to respond, each one, for the amount equivalent to their participation in the company. We can explain the above with an example. Imagine that José Vinatea’s participation in the YU company is equivalent to US $ 50,000. So, if the company goes bankrupt and must cancel its debt, Vinatea is only obliged to pay up to US $ 50,000.
- Public limited company:It is similar to a limited liability company. However, its capital is not divided into shares, but into shares. These securities, in turn, can be bought and sold in the stock market, that is, they are transferable.
It should be noted that in both limited liability companies and public limited companies the ownership of the company and its administration fall into different hands. On the one hand, the Shareholders’ Meeting is the one that brings together the owners of the corporation. Meanwhile, management is responsible for running the business.