What is a Private Corporation?

Malcolm Tatum

Private corporations are incorporated businesses that do not publicly trade shares of stock. Instead, any shares involved are held by a small number of stockholders. These same shareholders may or may not be actively involved in the day to day operations of the company. Examples of a private corporation include a family business, a closed corporation or a privately held corporation.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

With a private corporation, it is not unusual for the available shares to be distributed in a manner that provides one shareholder with the controlling interest, normally at least 51% of the issued shares. The remaining shares may be held by one other investor, or be divided among several investors. For instance, a family business may be structured so that the founder owns a controlling interest, while a son, daughter, and a spouse own more or less equal amounts of the remaining shares.

In most instances, the transfer of shares is only conducted among the existing shareholders. Should one investor wish to sell off his or her shares, the other current stockholders would be offered the opportunity to purchase a portion of all of those shares. Depending on how the bylaws and charter of the company are written, there may be the opportunity for a new shareholder to purchase the shares, subject to the approval of the remaining investors.

One of the benefits of a private corporation is there is usually less difficulty in the decision-making process. Since a relatively small number of people are involved, choosing and implementing a course of action can be managed in less time than with businesses that operate with a more complex organizational structure. At the same time, the nature of the private corporation can also make change very difficult if all the shareholders are somewhat conservative and not open to making adjustments in how the company is operated.

While the private corporation is often a smaller business entity, that is not always the case. The actual workforce of the business may be quite extensive, and the company may operate any number of facilities such as manufacturing plants, sales offices, or retail outlets. The defining characteristic is the relatively small number of investors with a stake in the financial success of the business, and not the actual size of the company as a whole. This means that a family business that is incorporated as a private corporation may be based in a single location, or involve facilities that are located around the world.

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Discussion Comments


Most small family businesses and businesses with very few share holders are run fairly well. But there can be problems with finances. When things aren't going well, the stress of the stock holders can cause difficulties among the financial partners.

If the company doesn't have enough money to put into research and development, they might have the option of going public. With the extra money from selling shares to the public, they can continue to function, but would then be a public company. They would have to give the idea a lot of serious thought because having a publicly owned company has its problems too.

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