Private Companies: Types, Advantages, Disadvantages and Going Public

A private company, or privately held company, is a business whose shares are not listed on a stock exchange and cannot be bought by the general public. Its owners are founders, families, employees or invited investors, and it does not file the annual and quarterly reports that public companies file with the SEC. The main advantages are control, privacy and freedom to plan long term. The main disadvantages are harder access to capital and shares that are difficult to sell.

Most businesses are private. The SBA's Office of Advocacy counts 36,207,130 small businesses in the United States, 99.9% of all firms, while the SEC says in its fiscal 2027 budget justification that it reviews the disclosures of "more than 7,900 reporting companies." This page covers what makes a company private, the types, the advantages and disadvantages, how private companies raise money, and what changes when one goes public.

What Is a Private Company?

A company is private because of how its shares are owned and traded, not because of its size. Koch describes itself as "one of the world's largest privately held companies", and Mars calls itself family-owned. A two-person bakery is private too.

In the United States, "private" has a practical legal edge. A company becomes subject to the SEC's periodic reporting rules by registering a public offering, by listing on a stock exchange, or by growing past the thresholds in Section 12(g) of the Securities Exchange Act. The SEC's small-business guidance says a company must register a class of stock if "it has more than $10 million in total assets and a class of equity securities, like common stock, that is held of record by either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors." The same test appears in SEC Rule 12g-1. Stay under those lines, stay off an exchange and do not sell stock in a registered offering, and a company can stay private with no periodic SEC reports, however valuable it becomes. It may still file some notices, such as a Form D when it sells stock privately.

A private company can still have many shareholders, issue stock, pay dividends and borrow from banks. What it cannot do is sell shares to anyone in the public without either registering the offering or fitting an exemption.

Types of Private Companies

Private companies are grouped two ways: by legal form and by who owns them.

By legal form. Strictly, "private company" usually means a privately held corporation or LLC, but every unlisted business is privately owned.

• Sole proprietorship. One owner, no legal separation, unlimited personal liability. Profit is taxed on the owner's return, and the owner pays self-employment tax on it.
• Partnership. Two or more owners sharing profit and, in a general partnership, liability.
• Limited liability company (LLC). Owners' personal assets are shielded from business debts. By default an LLC is taxed like a sole proprietorship or partnership, and it can elect to be taxed as a corporation.
• S corporation. A corporation that passes income through to its owners, avoiding corporate-level tax. The IRS limits S corporations to "no more than 100 shareholders," only "one class of stock," and allowable shareholders such as individuals, certain trusts and estates, not partnerships, corporations or non-resident aliens.
• C corporation. A separate taxpayer. The IRS says in Publication 542 that corporations figure tax "by multiplying taxable income by 21%". Dividends are taxed again when paid to shareholders. Startups that plan to raise venture capital usually use this form.

By ownership. The same legal form covers very different companies:

• Family-owned companies, often run across generations. Mars describes itself as "family-owned" on its About page.
• Founder- and venture-backed startups, which usually plan to go public or be sold. The rare ones valued at $1 billion or more are called unicorns.
• Private equity-owned companies, bought by a fund, sometimes by taking a public company private, and usually resold within several years.
• Employee-owned companies, where staff hold shares directly or through an employee stock ownership plan.

How Private Companies Raise Money

A private company cannot sell shares to the public without registering them, so it raises money through exemptions from SEC registration, plus loans.

• Regulation D, Rule 506(b). Unlimited amounts from accredited investors, plus up to 35 non-accredited purchasers in any 90-day period, under 17 CFR 230.506. Each non-accredited purchaser, alone or with a purchaser representative, must have enough "knowledge and experience in financial and business matters" to evaluate the investment. No general advertising.
• Rule 506(c). General solicitation is allowed, but every buyer must be accredited and the company must take reasonable steps to verify that.
• Accredited investors. Under Rule 501(a), an individual can qualify through income, net worth or a professional license: income over $200,000 in each of the two most recent years ($300,000 jointly with a spouse or spousal equivalent) with "a reasonable expectation of reaching the same income level in the current year"; net worth over $1 million, alone or jointly, not counting the primary residence; or holding in good standing a professional certification the SEC has designated. The SEC designated the Series 7, Series 65 and Series 82 licenses in August 2020. Other routes exist too; for example, a company's own directors, executive officers and general partners are accredited for its offerings.
• Form D. Under Rule 503, a company relying on Rule 504 or 506 must file a notice on Form D "no later than 15 calendar days after the first sale" of securities in the offering.
• Regulation Crowdfunding. Up to $5 million in 12 months from the public, through a single SEC-registered broker-dealer or funding portal, under 17 CFR 227.100.
• Regulation A, Tier 2. Up to $75 million in 12 months under 17 CFR 230.251, with an SEC-qualified offering statement: a "mini-IPO" with lighter ongoing reporting than a fully public company.
• Debt. Bank loans, credit lines and SBA-backed loans, usually with personal guarantees from the owners of smaller firms.

Advantages of a Private Company

These are the benefits of a private company that owners cite most, and why many of the largest firms never list.

• Control. Owners decide strategy, pay, dividends and sale timing without public shareholders voting on it. A founder can keep majority control through several funding rounds.
• Confidentiality. Revenue, margins, executive pay and plans stay private. A public company must file annual reports on Form 10-K, quarterly reports on Form 10-Q and, for certain events, current reports on Form 8-K, "often within four business days," according to the SEC's guidance on Exchange Act reporting.
• Long-term planning. No quarterly earnings call means no pressure to hit a consensus estimate. Mars puts it this way on its About page: "As a family-owned business, we have the ability to think in generations, rather than just business quarters..."
• Lower compliance cost. No SEC reporting, no certifications of periodic reports by the CEO and CFO, no stock exchange listing fees, and no investor relations department.
• Tax and structure flexibility. A private company can be an LLC or S corporation and avoid double taxation. Listed operating companies are usually C corporations.
• Speed. A decision needs agreement from a few owners, not a proxy vote.

For entrepreneurs, the advantage is keeping what you build: your equity, your say and your information. The disadvantage is that growth is limited to what you can fund from profits, loans and the investors you can find.

Disadvantages of a Private Company

The disadvantages of a private company mostly come from the lack of a public market for its shares.

• Harder access to capital. A private company cannot sell stock to the general public, so large raises depend on a few wealthy investors or funds, who will want a share of control in return.
• Illiquid shares. There is no exchange on which to sell. Shareholder agreements commonly restrict transfers, and shares bought in a private placement are restricted securities: under SEC Rule 144, holders of a non-reporting company's stock must generally wait at least one year before reselling under that rule. Minority holders depend on protections such as tag-along rights to share in a sale.
• Uncertain value. Without a daily share price, an owner's stake is worth what the next buyer will pay, which makes estate planning, divorce settlements and employee equity harder.
• Concentrated risk. Owners often have most of their wealth in the company and have personally guaranteed its debts.
• Succession. Family firms must hand control from one generation to the next, and disputes can split the business.
• A ceiling on shareholders. Crossing the 12(g) thresholds forces public reporting whether or not the company wants it.

Private Company vs Public Company: Key Differences

The differences come down to who can buy the shares, what must be disclosed, and who has a say.

A public company can raise large amounts quickly, pay for acquisitions with stock, and give employees shares they can sell. The price is permanent disclosure, a board accountable to outside shareholders, and a stock price that reacts to every quarter. Our page on public companies covers that side in detail, including why some go back to being private.

Going Public: When and How a Private Company Lists

Companies go public to raise large amounts of capital, to let founders, employees and early investors sell, and to use stock as currency for acquisitions. The SEC's small-business guidance, Ready to Go Public?, warns: "Going public is a journey and can take several months or longer." It tells companies to weigh "the ongoing compliance costs of remaining a public company."

The cost is concrete. In Jay Ritter's University of Florida IPO statistics (updated September 25, 2026), 93.3% of operating-company IPOs in the US from 2001 to 2025 that raised $30 million to $160 million (in 2025 dollars) paid an underwriting spread of exactly 7%. On a $100 million IPO, that is $7 million to the underwriters before legal, accounting, exchange and printing costs. Shares sold in the IPO also usually rise on the first day: in 2025 the average first-day return was 29.3%. Part of that jump is money the company could have raised with a higher offer price.

IPO activity swings with the market. Ritter counts 311 operating-company IPOs in 2021, then 38 in 2022 and 90 in 2025.

There are other routes. A direct listing puts shares on an exchange without an underwritten offering; most sell only existing shares, though the SEC approved an NYSE rule in December 2020 that also lets the company sell new ones. A company can merge with a special purpose acquisition company, or with a listed shell in a reverse takeover. For the full IPO process, see our guide to going public through an IPO. And the road runs both ways: public companies can be taken private in a going-private transaction.

How Private Companies Are Valued

With no share price, a private company is valued with the same methods analysts use for public ones, applied to less information:

• Comparable companies: multiples of earnings or revenue from similar public companies or recent sales of similar private ones.
• Discounted cash flow: the present value of forecast cash flows.
• Asset-based value: assets minus liabilities, useful for holding companies and firms being wound down, less so for a going concern whose value lies in future earnings.
• Recent funding rounds: the price investors just paid, adjusted for the rights their shares carry.

Two adjustments matter. A discount for lack of marketability reduces the value of a stake that cannot easily be sold, and a control premium raises the value of a stake that can run the company. Tax rules recognise both. When a private company grants stock options, the IRS rules under section 409A name "control premiums or discounts for lack of marketability" among the factors in a reasonable valuation, and presume reasonable an independent appraisal dated "no more than 12 months before" the grant. That is why startups commission a "409A valuation" at least once a year.

FAQ

What is a privately held company?

A company whose shares are owned by a limited group, such as founders, families, employees or invited investors, and are not listed on a public stock exchange. It does not file periodic reports with the SEC unless it registers an offering, lists on an exchange or crosses the Section 12(g) thresholds.

Can a private company have shareholders?

Yes. A private company can have one owner or thousands. Once a company has more than $10 million in assets and a class of stock held of record by 2,000 people, or by 500 who are not accredited investors, it must register with the SEC and start reporting.

Can anyone invest in a private company?

Mostly not. Most private offerings under Regulation D are sold mainly to accredited investors: roughly $200,000 of income ($300,000 with a spouse or spousal equivalent) in each of the last two years and expected this year, $1 million of net worth excluding your home, or a Series 7, 65 or 82 license in good standing. Regulation Crowdfunding and Regulation A offerings are open to the public, within investment limits.

Why would a company stay private?

To keep control and confidentiality, avoid public reporting and listing costs, and plan for the long term without quarterly earnings pressure. Companies that can fund growth from profits, loans or private investors have little need to list.

Sources

• SBA Office of Advocacy, Frequently Asked Questions About Small Business 2026 (February 3, 2026): 36,207,130 small businesses, 99.9% of firms
• U.S. SEC, Fiscal Year 2027 Congressional Budget Justification: more than 7,900 reporting companies
• U.S. SEC, Exchange Act Reporting and Registration (reviewed September 22, 2025) and Ready to Go Public? (reviewed April 24, 2026)
• eCFR, 17 CFR 240.12g-1, 230.501, 230.506, 230.503, 230.144, 230.251 and 227.100
• IRS, S corporations and Publication 542, Corporations
• eCFR, 26 CFR 1.409A-1: valuation of service recipient stock, (b)(5)(iv)(B)
• Jay R. Ritter, University of Florida, IPO data: Initial Public Offerings: Updated Statistics (September 25, 2026), Tables 1 and 10
• U.S. SEC, SEC Modernizes the Accredited Investor Definition (August 26, 2020): Series 7, 65 and 82 designated
• U.S. SEC, Statement on primary direct listings (December 23, 2020)
• Mars, Incorporated, All About Mars
• Koch, Inc., Our story