A privately held company is owned by a few individuals. Shareholders of the firm are responsible only up to the amount invested in the firm. Shareholder’s personal assets and funds cannot be used in insolvency. The company acts as a separate legal entity and pays tax separately.
An LLC (limited liability company) combines the limited liability of a corporation and the pass-through taxation of a partnership. LLC owners report the profits and losses on their tax returns. Most LLCs are privately held with minimal legal formalities. An LLC provides a financial barrier between the owner and the firm since it is a distinct entity. This implies creditors can’t take the owner’s assets. An LLC cannot issue shares to the public to raise funds. LLCs and corporations can be privately held businesses. Sole-proprietorships and partnerships can also be privately held. Both LLCs and corporations can be publicly traded, though most public companies are corporations.
Is an LLC Publicly or Privately Held?
A limited liability company (LLC) is a privately held business entity. An LLC cannot trade publicly unless they adopt a publicly traded partnership structure. Then they can sell stocks on a securities exchange.
All companies start privately held. Four common types of private companies are sole proprietorships, LLCs, S-corporations, and C-corporations. Each has different rules for owners and taxation. Private companies benefit from fewer regulations and reporting requirements than public firms. This leads to lower costs.
Private companies cannot sell shares to the public. So they raise funds through private equity, loans, or reinvesting profits. Their tight ownership enables quick decisions. But it limits available capital compared to public firms.
Valuation and Regulation of Private Companies
To value a private firm, compare its finances to similar public companies. Some major private US companies are Mars, Koch Industries, and Chick-fil-A. Most states don’t require a business license to form an LLC. But owners must still register with the state and follow relevant regulations.
Can an LLC Go Public?
LLCs, S-corporations, and C-corporations are types of private companies. Private companies benefit from fewer regulations and reporting requirements than public firms.
LLCs have a flexible structure. This allows LLCs to be taxed as a partnership. It can then trade ownership interest on a securities exchange. But LLCs face limitations in going public. Any LLC wanting to go public would first convert to a corporation. This has potentially adverse tax consequences. State laws make it difficult for an LLC to do an initial public offering without a financial downside.