privately held corporation

(noun)

a business entity owned by a small number of people, and not having shares of ownership sold via a stock exchange or other public market

Related Terms

Examples of privately held corporation in the following topics:

  • The Transformation of Law

    • Marshall also defended the legal rights of corporations and granted corporations a level of protection for their property equal to what individuals were entitled.
    • This decision also shielded corporations from intrusive state governments.
    • Woodward helped to establish the legal structure of modern corporations.
    • In this decision, the Court held that the Contract Clause of the Constitution protects private corporate charters from state interference.

  • Publicly Held Corporations

    • It is partially owned by the government because all its preferred stock is under government ownership while its common stock is held by the public.
    • For example, in 2007 the Chinese Investment Corporation agreed to acquire a 10% interest in the global investment bank Morgan Stanley, but it is unlikely that this would qualify the latter as a government-owned corporation.
    • The term government-linked company (GLC) is sometimes used to refer to private or public corporate entities in which an existing government owns a stake through a holding company.
    • There are multiple ways of defining GLCs, depending on the proportion of the corporate entity a government owns.
    • Sometimes they are even propped up with cash infusions in times of crisis to help offset situations that would bankrupt a normal privately owned business.

  • Advantages of Public Financing

    • Usually, security of a publicly traded company is owned by many investors while the shares of a privately held company are owned by relatively few shareholders.
    • This is the reason publicly traded corporations are important; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises.
    • New companies, which are typically small, tend to be privately held.
    • After a number of years, if a company has grown significantly and is profitable or has promising prospects, there is often an initial public offering, which converts the privately held company into a publicly traded company.
    • This method provides capital for various corporate purposes through the issuance of equity without incurring any debt.

  • Public and Private Bureaucracies

    • Means, The Modern Corporation and Private Property (1932), he detailed the evolution in the contemporary economy of big business.
    • Berle argued that the individuals who controlled big firms should be held accountable.
    • Directors of companies are held accountable by the shareholders of companies.
    • At times, they are not held accountable because of rules found in company law statutes.
    • Today, the formation of private bureaucracies within the private corporate entities has created their own regulations and practices.

  • Advantages of Private Financing

    • In countries with public trading markets, a privately held business 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 or their families and heirs or by a small group of investors.
    • Most small businesses are privately held.
    • Though most companies start out privately held, there are situations in which a publicly traded company becomes privately acquired.
    • The company is then privately financed.

  • Corporate Fraud

    • The Enron Corporation declared bankruptcy in 2001 and became the universal symbol for corporate fraud.Enron managers created Special Purpose Entities (SPE) with the sole purpose to wipe debt and liabilities from Enron's financial statements.A Special Purpose Entity consists of a company or subsidiary of the corporation.A SPE could be a shell company, where the company does not physically exist, except on paper.
    • Countries differ in corporate structure and planning.The U.S. corporations usually focus on short-term profits, and thus, they have problems with corporate fraud.On the other hand, the Japanese plan long term and they form a Keiretsu, a conglomerate of many companies with a bank member.Consequently, the bank could grant low-interest loans to its partner companies, and the Keiretsu usually focuses on long-term profits and market shares.Furthermore, corporations in South Korea, Germany, and Russia also established conglomerates, which are similar to a Keiretsu.
    • Some corporations suffer from the principal-agent problem, when two related parties have different incentives, creating conflicts and odds with each other.For example, the corporate structure separates the managers from the owners (i.e. stockholders).Stockholders select managers, who maximize profits, maximize the return to the shareholders and/or increase shareholder value.However, managers may not act in the best interest to the owners.They want high salaries, generous benefits, luxurious offices, and access to private planes and Limousines, reducing the return to the stockholders.
    • The U.S. investment banks, for example, were partnerships before the 1990s, and the managers handled money carefully.They were both the principal and agent.Then the managers converted the investment banks to corporations during the 1990s, and the managers gambled and took high risks while the shareholders owned the corporations.Investment banks became involved in the mortgage market in the early 2000s and were caught in the mania of the U.S. housing bubble.When the bubble deflated, the shareholders lost their stock value during the 2008 Financial Crisis.Finally, for one perverse example, GM cancelled its stock, and the shareholders lost everything during 2008.Remember, the corporate managers represent the shareholders and run the corporation on their behalf.
    • A family who dominates a corporation could reduce the principal-agent problem.For example, the Walton family is the majority shareholders who actively manage the Wal-Mart Corporation.Microsoft was similar, when Bill Gates was both the CEO and majority shareholder.Consequently, they become both the agent and principal, and they have one united interest - to earn profits.Thus, these companies earned high returns, and managers have better vision and oversight over their corporations.

  • Types of Stock Market Transactions

    • Through this process, a private company transforms into a public company.
    • The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company.
    • The offered shares are privately held by shareholders of the issuing company, which may be directors or other insiders (such as venture capitalists) who may be looking to diversify their holdings.
    • "Private placement" usually refers to the non-public offering of shares in a public company (since, of course, any offering of shares in a private company is and can only be a private offering).
    • In some countries, including the U.S. and the UK, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding.

  • Deficit Spending, the Public Debt, and Policy Making

    • Otherwise the debt issuance can increase the level of (i) public debt, (ii) private sector net worth, (iii) debt service (interest payments) and (iv) interest rates.
    • In the United States, taxes are imposed on net income of individuals and corporations by the federal, most state, and some local governments.
    • Debt held by the public includes Treasury securities held by investors outside the federal government, including that held by individuals, corporations, the Federal Reserve System and foreign, state and local governments.
    • Debt held by government accounts or intragovernmental debt includes non-marketable Treasury securities held in accounts administered by the federal government that are owed to program beneficiaries, such as the Social Security Trust Fund.
    • Republicans typically advocate Supply-side economics, which involves tax cuts and deregulation to encourage the private sector to increase its spending and investment.

  • PACs and Campaigns

    • In 2010, the United States Supreme Court held in Citizens United v.
    • Federal Election Commission that laws prohibiting corporate and union political expenditures were unconstitutional.
    • Citizens United made it legal for corporations and unions to spend from their general treasuries to finance independent expenditures, but did not alter the prohibition on direct corporate or union contributions to federal campaigns; those are still prohibited.
    • The FECA and the FEC's rules provide for the following: Individuals are limited to contributing $5,000 per year to Federal PACs; corporations and unions may not contribute directly to federal PACs, but can pay for the administrative costs of a PAC affiliated with the specific corporation or union; Corporate-affiliated PACs may only solicit contributions from executives, shareholders, and their families.
    • The leading democracies have different systems of campaign finance, and several have no institutions analogous to American PACs, in that there are no private contributions of large sums of money to individual candidates.

  • Corporations and Corporate Power

    • Corporations have powerful legal rights, and some have revenues that exceed the revenues of sovereign nations.
    • Once incorporated, a corporation has artificial personhood everywhere it operates, until the corporation is dissolved.
    • A multinational corporation (MNC) is a corporation that either manages production or delivers services in more than one country .
    • Anti-corporate advocates express the commonly held view that corporations answer only to shareholders, and give little consideration to human rights, environmental concerns, or other cultural issues.
    • Multinational corporations are important factors in the processes of globalization .