Securities: Privately Held Firms

Privately Held Firms

What is a privately held company?

A privately held company is a type of company that is owned by only a few people. It's like having a special club where only a small group of friends can be members.

Why are privately held firms different from other companies?

Privately held firms don't have to tell the public as much information about their money and business. This helps them save money and keeps their secrets safe from other companies who might want to copy them.

What are the limits of privately held firms?

Right now, privately held firms can only have up to 499 members in their club. This means they can't get a lot of money from many different people. That's why most of the big companies you know are different and have more members.

How do private firms get money?

When private firms want more money, they sell special shares to a small group of important people who have a lot of money. It's like giving them a piece of the company in exchange for their money. They can do this without following all the rules that public companies have to follow.

Why are shares in private companies different?

Shares in private companies are not like the ones you hear about in the stock market. You can't buy or sell them easily. This makes them not as popular and the prices are not as high. It's like having a toy that not many people want to play with.

What changes are happening for private companies?

Some people think the rules for private companies are too strict. They want to make it easier for them to do things. The government is thinking about changing the rules so that private companies can have more members and share more information about their money. They might also make it easier for people to know when private companies are selling their shares.

What are the risks of trading in private companies?

People have found ways to trade shares of private companies, but it's not as safe as trading in the stock market. These ways don't require sharing a lot of information about the company or how the trades happen. It's like playing a game without clear rules or knowing if everyone is playing fair.

This article takes inspiration from a lesson found in FIN 4504 at the University of Florida.