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What is a Private Sector Business?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 November 2016
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A private sector business is an organization that is run for the purpose of profit or dividends and is owned by private citizens. This distinguishes it from public sector businesses, which are run by the government for the purpose of providing goods and services to the public. This type of business, though primarily concerned with making money, may actually be considered a for-profit or non-profit enterprise, depending on how funds are used.

The role of a private sector business will depend on the sociopolitical structure of the region in which it operates. In countries that prefer large private markets, private businesses may make up the vast majority of good and service providers for the entire nation. Regions that emphasize government security over private industry may have a very small market for private businesses, and may impose tough regulations and sanctions on private industry as a whole.

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The way a private sector business is structured may vary widely from company to company. Much of the structural distinction depends on the ownership and management of the company. A sole proprietor private sector organization has one owner who runs the entire show, and thus receives all the profits. Partnerships are businesses where two or more citizens own the company, dividing responsibility and profits according to their own agreements. Public companies may start as sole or partner-owned businesses, but open up ownership by selling shares to investors and the open market, a tactic that facilitates expansions. A cooperative shares ownership between all employees, not just management or company creators, using a democratic model to make management decisions.

Some private sector businesses are known as non-profits or not-for-profits. These are organizations that use profits to fund a stated purpose, such as saving the whales or distributing arts grants. Though a non-profit may generate profit, it does not distribute profits to company owners. Instead, all profit is funneled back into the organization to help further its mission. A non-profit private sector business may be exempt from some types of taxes, depending on the region in which it operates.

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