Private company

economic-dictionary

A private company is a for-profit organization that is owned by private investors. Thus, the majority shareholder 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 managed 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 market. In this way, you are not obliged to share your financial information with potential investors, that is, with society in general.

Types of companies Private property

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 aim of making a profit.
  • It can become a public company if it is nationalized.
  • It can be formed from the privatization of a public company or when the monopoly owned by the State in a market is broken.
  • It can compete with the public company.
  • The fact that it is private does not mean that the company should not be accountable 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 to guarantee for its workers all the benefits established by law.

However, it should be clarified that we speak of a private for-profit company, to differentiate it from foundations or NGOs. Could there be a private non-profit company? Yes, but it wouldn't make much sense.

Types of private company

There are mainly four types of private company

  • Sole proprietorship: It is an institution with a single owner and shareholder. This individual has total control over the organization and must answer for the finances acquired.
  • Association: It is similar to the previous case, only that the firm is made up of two or more people. They must answer for all the financial obligations of the company.
  • Limited Liability Company: 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. Let's imagine that José Vinatea's stake in the YU company is equivalent to US $ 50,000. So if the company goes bankrupt and must pay off its debt, Vinatea is only obliged to pay up to US $ 50,000.
  • Stock 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 on the stock market, that is, they are transferable.

It should be noted that both in 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 in charge of running the business.

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