What is a Closely Held Corporation? What is a Publicly Held Corporation?

A closely held corporation, or private corporation, is one that is owned by private individuals who do not trade or sell their shares of ownership. This is in contrast to publicly held companies. Typically, closely held corporations are not subject to the same stringent reporting requirements as most public corporations.

What is a closely held corporation?

The biggest difference between close or closely held private companies and publicly held or traded companies is that a closely held corporation has a tight-knit group of shareholders that make up the ownership committee for the business, while a publicly held corporation is one that is owned by stockholders.

Publicly Held Companies

In a publicly held business, the ownership shares of the corporation are traded publicly on the international stock market.

A publicly held company is owned and valued by the worth of its stockholders. People purchase shares of the company in the hope that the company will increase its net worth so that their shares end up being worth more than they were when they purchased them.

It is easy to assess the value of a publicly held company. In addition, selling and buying shares is as simple as placing an order with any broker or brokerage firm.

Private Corporations

The private corporation, on the other hand, is owned fully by shareholders that do not trade or sell their stock in the company unless they are opting to sell out their portion of ownership in the business to other owners.

The corporation’s bylaws usually give the first option to purchase these shares to the other shareholders before they are offered to anyone else as a means of “buying in” to the company. Valuing a closely held company is also much more difficult since there is no general marketplace for its sale.

Case Studies: Understanding Closely Held and Publicly Held Corporations

Case Study 1: Closely Held Corporation

Alpha Enterprises is a closely held corporation founded by a small group of friends. The ownership of the company is limited to these initial shareholders, and they do not publicly trade their shares. The company’s bylaws give priority to existing shareholders to purchase shares when someone decides to sell.

As a closely held corporation, Alpha Enterprises enjoys flexibility in reporting requirements, making it easier for the owners to manage and maintain control over the business.

Case Study 2: Publicly Held Corporation

Beta Inc. is a publicly held corporation listed on the stock market. The company’s ownership is dispersed among numerous shareholders who have purchased shares on the open market. The value of Beta Inc. is determined by the market demand for its shares, and the stockholders can buy or sell their shares easily through brokers or brokerage firms.

The company is subject to strict reporting requirements, ensuring transparency for its public shareholders.

Case Study 3: Advantages and Challenges

Charlie Technologies is a hybrid corporation, with some shares publicly traded and others closely held. The company decided to go public to raise capital for expansion while maintaining a significant portion of ownership within a closely-knit group.

The public listing brought in substantial funding, enabling the company to grow its operations, but it also increased the complexity of compliance with reporting regulations. Balancing the benefits of public funding with the autonomy of a closely held corporation required careful strategizing.