What is a 'Private Company'

A private company is a company with private ownership. As a result, it does not need to meet the
Securities and Exchange Commission's (SEC) strict filing requirements for public companies. Private
companies may issue stock and have shareholders, but their shares do not trade on public exchanges and
are not issued through an initial public offering (IPO). In general, the shares of these businesses are less
liquid and the values are difficult to determine.

BREAKING DOWN 'Private Company'

There are four main types of private companies: sole proprietorships, limited liability corporations, S
corporations or C corporations. All of these types of private companies have different rules for
shareholders, members and taxation.

Sole proprietorships put ownership of the company in the hands of one person. While this gives the one
owner total control over decisions, it also makes it harder to raise money. Limited liability corporations
often have multiple owners who share ownership and liability. There are fewer documents required for
opening this type of private company.

S Corporations and C corporations are similar to public companies with shareholders. These private
companies do not have to submit quarterly or annual financial reports. S corporations can have no more
than 100 shareholders. C corporations can have an unlimited number of shareholders.

Remaining a private company can make raising money more difficult. Public companies can often sell
shares or raise money through bond offerings with more ease. Private companies do have access to bank
loans and certain types of equity funding, depending on the type of corporation.

Why Companies Stay Private

The high costs of undertaking an IPO is one reason why many smaller companies stay private. Public
companies also have to publicly release financial statements and other filings on a regular schedule. These
filings include annual reports (10-K), quarterly reports (10-Q), major events (8-K) and proxy statements.

Another reason why companies stay private is to maintain family ownership. Many of the largest private
companies today have been owned by the same families for multiple generations. Staying private means
the company does not have to answer to its shareholders or choose different members for the board of
directors. Some family-owned companies have gone public, and many maintain family ownership and
control through a dual-class share structure, meaning family-owned shares have more voting rights.

Going public is a final step for private companies. An IPO costs money and takes time for the company to
set up. Fees associated with going public include an SEC registration fee, Financial Industry Regulatory
Authority (FINRA) filing fee, a stock exchange listing fee and money paid to the underwriters of the
offering.

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Next Up

1. Private Company

2. Privatization

3. Going Private

4. Private Equity

5. Public Company

6. Privately Owned

7. Ltd. (Limited)

8. Reverse Takeover - RTO

9. Repackaging

10. Primary Offering

Privatization

Privatization can refer to the act of transferring ownership of specified property or business operations
from a government organization to a privately owned entity, as well as the transition of ownership from a
publicly traded, or owned, company to a privately owned company. For a company to be considered
privately owned, it cannot secure funding through public trades on a stock exchange.

BREAKING DOWN 'Privatization'

Government privatization can occur based on the governments desire to cease operations in an area or
through various voter-driven initiatives. Corporate privatization may occur in order to restructure certain
business operations that could have a negative impact on share prices or that would be challenging to
complete when having to regard shareholder interests. Additionally, privatization may occur after a tender
offer to purchase the companys shares has been received or a merger with another company takes place.

Privatization of Government Operations

Economies are divided into two sections: the public sector and the private sector. The public sector
represents activities in the areas of enterprise or industry that are handled by various government
agencies. The private sector represents all other business operations that are not directly managed by a
government entity.
What is a Memorandum of Association?

Memorandum of Association is the most important document of a company. It states the objects for which
the company is formed. It contains the rights, privileges and powers of the company. Hence it is called a
charter of the company. It is treated as the constitution of the company. It determines the relationship
between the company and the outsiders.

The whole business of the company is built up according to Memorandum of Association. A company
cannot undertake any business or activity not stated in the Memorandum. It can exercise only those
powers which are clearly stated in the Memorandum.

Definition of Memorandum of Association

Lord Cairns:

The memorandum of association of a company is the charter and defines the limitation of the power of
the company established under the Act.

Thus, a Memorandum of Association is a document which sets out the constitution of the company. It
clearly displays the companys relationship with outside world. It also defines the scope of its activities.
MoA enables the shareholders, creditors and people who has dealing with the company in one form or
another to know the range of activities.

Contents of Memorandum of Association

According to the Companies Act, the Memorandum of Association of a company must contain the
following clauses:

1. Name Clause of Memorandum of Association

The name of the company should be stated in this clause. A company is free to select any name it likes.
But the name should not be identical or similar to that of a company already registered. It should not also
use words like King, Queen, Emperor, Government Bodies and names of World Bodies like U.N.O.,
W.H.O., World Bank etc. If it is a Public Limited Company, the name of the company should end with the
word Limited and if it is a Private Limited Company, the name should end with the words Private
Limited.