Closely-Held vs Publicly-Held Business - Explained
Understanding the Distinction
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What is the difference between a closely-held company and a publicly-held company?
Business entities are often categorized as either closely-held or publicly-held. These designations are not separate types of business entity; rather, they are classifications or defining characteristics of a given business. Generally, the distinction between the two classifications concerns the number of business owners and whether the equity ownership is sold on a public exchange.
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What is a Closely-held Business?
A closely-held business, as the name implies, is held by a smaller or more closely related group of individuals. It is often thought of as a smaller business, such as a mom-and-pop or family business. In truth, however, the closely-held status has little to do with the size or revenue of the business; rather, it simply means that the business is not widely owned by numerous, unrelated people. Another characteristic of the closely-held entity is that it is not traded on a public market.
- Example: My wife, three friends, and I own a business that specializes in dog training and boarding. We are a closely-held business because all of the ownership is held by a small group of closely-connect individuals.
What is a Publicly-held Business?
A publicly traded business is any business that is traded on a public exchange. This means that the company has gone through an initial public offering in which its shares were registered with the Securities and Exchange Commission and subsequently listed for sale to the public at large. A publicly-held or publicly-traded company is generally held, or capable of being held, by a large number of unrelated people.
- Example: Elton's business is growing rapidly. He needs to bring in additional capital to expand operations. He decides to undertake a public offering and list shares of his company for sale on a public exchange. Once listed for sale to the public, Elton's business is now a publicly-traded company.
- Note: A closely-held business is a private business. It is unlikely that a business could or would undertake a public offering and remain closely held. The inverse, however, is not necessarily true. Private business entities are not necessarily closely held. Some private businesses are widely held by a large number of shareholders.
Some companies choose to remain closely-held instead of seeking a large and diverse set of owners. Other companies prefer to be widely held and often undertake a public offering as part of that effort. Can you think of reasons why a company would prefer to remain a closely-held private company versus a widely-held public company?
Can you identify a very large closely held company that does business across the United States? Can you identify why the company is considered, closely-held.
- Hobby Lobby Stores, Inc., is a closely-held company that does business across the US. It is considered to be closely held, as there are only a few owners, most of whom are biologically related.
- Business Entities (Intro)
- Why is studying business entities important?
- Considerations When Forming a Business Entity
- Holistic (Detailed) Overview of Setting Up a Business Entity
- What are Business Entities?
- What is a Closely-held vs Publicly-held Business?
What are the main types of business entity?
- What are the primary characteristics of business entities?
- What is Maintenance of a business entity?
- What is Control of a business entity?
- What is Compensation of business owners?
- What is Taxation of a business entity?
- What is Sales & Use tax?
- What are payroll and self-employment taxes?
- What are the major characteristics of a Sole proprietorship?
- Uniform Partnership Act
- Uniform Limited Partnership Act
- Partnership Agreement
- At-Will Partnerships
- Responsibilities of Partners to the Partnership
- Silent Partner
- Funding the Partnership
- How are Partners Compensated
- Splitting Equity in an Industrial Partnership
- What are the main characteristics of a Limited liability partnership?
- What are the main characteristics of a Limited liability company?
- Forming an LLC
- Articles of Organization
- Operating Agreement or LLC Agreement
- Why You Need an LLC Agreement
- LLC Compensation of Members
- LLC Taxation
- Converting to an LLC
- What are the main characteristics of a Corporation
- Articles of Incorporation
- What to include in the Articles of Incorporation
- Corporate Bylaws
- Exiting the Corporation
- Dissenter's Rights
- What are the requirements to be an S Corporation?
- Non-Profit Organization
- NonProfit Business Entities
- Private Foundation
- A Detailed Explanation of the Sole Proprietorship
- Taxation of Sole Proprietorship
- A Detailed Explanation of the General Partnership
- 50/50 Partnerships: Never a Good Idea
- Publicly-Traded Partnerships
- A Detailed Explanation of the Limited Liability Company
- A Detailed Explanation of the Corporation
- Keepwell Agreement (Letter of Comfort)
- Personal Service Corporation Definition
- A Detailed Explanation of the Non-Profit Entity
- Public Limited Company (UK)