Privately Held Companies

A privately held company is a closed corporation that the government does not own. Shares of these companies are not disclosed or distributed to the public - for example, you would not find a private company such as Hallmark trading on the New York Stock Exchange, nor would it be issued through an IPO (initial public offering). IPOs are often expensive to obtain, which is often why companies refrain from going public. However, a downside to remaining a private corporation is that it is more difficult to raise money, as the access to the shares and company itself is much more limited and secluded. Public companies are required to disclose more information to the public and release quarterly and annual financial reports, which are all heavily scrutinized by the SEC.

There are four different types of privately held companies: Sole proprietorships (owned and managed by one person); LLCs (Limited Liability Companies which are defined by their merged ownership - liability is leveled out and not as risky); S & C Corporations (closest on the spectrum to public companies.) The sole difference between S Corporations and C Corporations is that S corporations are limited to 100 shareholders and are exempt from taxes. On the other hand, C corporations receive double taxation but are not subject to a limit on the number of shareholders. 

So How Can One Buy A Private Stock? 

Deals involving private stocks require a level of accreditation and connection through the buyer as the information on the prices is not available to the general public. An “accredited” individual (having a net worth of $1 million or more) is more likely to be granted access to a private stock sale. Selling private shares is just as difficult as the company must be exempt from SEC registration. There is also a one-year resale restriction on private shares.