Historical Context
Private corporations have been fundamental to the development of modern economies. The concept dates back to the Middle Ages when small guilds and cooperatives operated businesses privately. However, the formal legal recognition of private corporations became more established with the advent of company laws in the 19th century. For instance, the Joint Stock Companies Act of 1844 in the UK paved the way for easier incorporation of such entities.
Types/Categories
Private corporations can be categorized into several types based on their structure and purpose:
- Closely-Held Corporation: Owned by a small group of shareholders, often family members or close associates.
- Subsidiary Corporation: A company owned entirely or partially by another corporation.
- Domestic Corporation: Operates within its country of incorporation.
- Foreign Corporation: Operates in a different country from where it was incorporated.
- Non-Profit Corporation: Exists to serve a social cause rather than making a profit.
Key Events
- 1844: Joint Stock Companies Act in the UK allows for easier incorporation.
- 1890: Sherman Antitrust Act in the USA impacts corporate operations.
- 1933: Securities Act in the USA introduces regulations to protect investors, although private corporations remain exempt from some requirements.
Detailed Explanations
Structure and Governance
Private corporations have a board of directors that oversees the business operations. They are not required to disclose their financials publicly, providing more privacy and control. Shareholders of private corporations typically have more say in the company’s decisions compared to public corporations.
Legal Considerations
- Incorporation: Private corporations must be incorporated under the relevant state or country laws.
- Share Transfer Restrictions: Shares are not traded publicly, and transfers often require board approval.
- Reporting Requirements: Generally less stringent than those for public corporations.
Financial Models
While private corporations do not trade publicly, they can still employ complex financial models to analyze their business. Key formulas include:
Where \( R_t \) is the net cash inflow during the period, \( r \) is the discount rate, and \( t \) is the number of time periods.
Importance and Applicability
Private corporations play a crucial role in the economy by:
- Driving innovation due to their flexible structure.
- Providing jobs and economic stability.
- Allowing for tighter control and better decision-making without public pressures.
Examples
- Cargill: One of the largest private companies in the world, operating in the agriculture sector.
- Mars Incorporated: A famous privately-held company known for its confectionary products.
Considerations
Before forming a private corporation, consider:
- The legal complexities involved.
- The costs of incorporation and ongoing administration.
- Potential difficulties in raising capital compared to public companies.
Related Terms
- Public Corporation: A company whose shares are traded publicly on the stock market.
- Limited Liability Company (LLC): A hybrid entity that combines elements of a corporation and a partnership.
Interesting Facts
- The largest private company in the U.S. by revenue is Cargill.
- Private corporations can become public through an Initial Public Offering (IPO).
Inspirational Stories
- Mars Incorporated: Started as a small family business in 1911 and grew into a global powerhouse while remaining privately held.
Famous Quotes
- “Family-owned businesses can be the best way to keep control and maintain a consistent corporate philosophy.” - John D. Rockefeller
Proverbs and Clichés
- “Keep it in the family.”
Expressions, Jargon, and Slang
- PrivCo: Slang for private company.
- Closely-held: Refers to corporations with a small number of shareholders.
FAQs
What is a private corporation?
A company whose shares are not publicly traded and are held privately by a small group of shareholders.
How do private corporations raise capital?
They often rely on private equity, venture capital, or internal funds for raising capital.
What are the benefits of being a private corporation?
More privacy, greater control, and fewer regulatory burdens compared to public companies.
References
- Smith, J. (2018). Business Structures and Their Legal Implications. Harvard Business Review.
- Jones, M. (2019). Corporate Governance and Ownership. Oxford University Press.
- “Private Company Definition.” Investopedia, 2021. Investopedia.
Summary
Private corporations are an essential part of the global economy, offering flexibility, control, and privacy that public corporations may lack. Understanding their structure, benefits, and legal considerations can help business owners and investors make informed decisions. Whether it’s a family-owned business or a large subsidiary, private corporations continue to thrive and influence various economic sectors.
