Private enterprise can refer to a company owned by individuals and not controlled by the government or a company that is not publicly traded. Publicly traded companies must disclose information to protect investors, while private companies keep information proprietary. Private companies can transition to public companies through an initial public offering. Advantages of private companies include protection from hostile takeovers, but they may struggle to raise capital.
The term private enterprise can have a few different meanings, so it’s important to consider the context. A private company can simply be owned by individual citizens rather than controlled, managed and owned by a government. The term can also refer to a company that is not publicly traded on an open stock exchange and is therefore not subject to disclosure terms that many other companies in the public arena must abide by.
In some cases, to avoid confusion about these terms, an analyst or news reporter may use the term privately traded company. While it is a good way to explain that the company is not government owned but publicly traded, it is often unnecessary because the context explains the term being used. Still, in cases where there may be confusion, making a distinction helps remove all doubt from the listeners’ or readers’ minds.
A publicly traded company is generally not considered a private company because it has to make a lot of disclosures to remain in an open stock market. This helps protect investors who may not otherwise have access to this information. It also protects investors by allowing them to assume the information is accurate. If a company knowingly provides false or misleading information in reports to the Securities Exchange Commission or other government agencies, civil and criminal penalties may result.
On the other hand, if a company is a private company, all this information remains proprietary. The reason is that the company does not need to disclose this information because it has little ability to harm investors. While there may be some risk, especially if the company seeks a small business loan, assessing that risk is entirely up to the lending institution. Most lending institutions have a strict set of guidelines adopted when lending to a private company.
Just because a private company starts its operation without offering stock doesn’t mean it never can. If a company decides to go public, it usually does so by making an initial public offering. This is the transition from a private company to a public one. Once a company takes this step, reversing this trend to private status is extremely difficult.
There are several advantages and disadvantages to being a private company. One of the main advantages is that these companies are not subject to hostile takeover attempts by an individual or entity trying to buy 50% (plus an additional share) of their shares. One downside is that raising capital can only be done through investments or personal loans, which usually means the company cannot grow as quickly as one that is publicly traded.
Asset Smart.
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