Private Enterprise (Meaning and Explanation)

We explain what a private company is, its types, characteristics and examples. Also, differences with a public company.

What is a private company?

When we talk about a private company, we generally do so to distinguish them from public companies, that is, those that are totally or partially owned by the State. This means that private companies are those whose majority or total shareholders are private capital and which, therefore, are administered according to the independent will of the latter.

As a whole, private companies make up the so-called “private sector” of the economy whose interests focus on profitability and obtaining profits, in exchange for the competitive sale of products or services. Control of profits in this sector is considered central to capitalist economies and is often used as an index of a nation's wealth generation.

private companies arise by free association of their private founders, or due to privatization actions or sale to private parties of public companies. In any case, its main task is to generate profitability, that is, to accumulate capital and enrich its owners or shareholders, whether they are natural or legal persons.

The history of private companies dates back to the Renaissance itself, when the first formal organizations emerged for international trade and, later, industrial production. The success and emergence of this type of organizations took place at the hands of the monarchical and imperial States, which saw in them a form of political and economic expansion during the so-called Mercantilism.

Characteristics of private companies

Private companies are characterized by the following:

are private property that is, its owners or shareholders are free and independent actors, and not the State. It is possible, however, for the State to buy shares in a private company, without this meaning the loss of its autonomy. Except in cases where the State is the majority shareholder.
Its fundamental mission is to be profitable and generate profits that is, contributing through production and marketing to the generation of private wealth.
Their operation is governed by the laws of the nation in which they carry out their activities economic. They are susceptible to audit and supervision of different types. That means that, depending on local laws, companies are more or less required to be transparent with their finances and responsible for the consequences of their activities.
The organization's assets are always private as well as the ownership of the means of production. In addition, two types of salaried workers are hired: the administrative staff, who keep the company structure running, and the workforce, who carry out the productive activity.

Types of private companies

Private companies can be of different types, according to their administrative organization. These types are:

sole proprietorship. It refers to personal businesses, owned by an individual or owner, who runs it in person or hires others to do so. These companies are usually small and their owners bear full responsibility for their debts.
Association. In this case, two or more people come together to achieve a similar economic goal, that is, they associate to generate profits. The partners of the company will be its owners and will have full responsibility for its debts, depending on the organizational model they follow. There are three categories of such partnerships: general partnerships, limited partnerships, and limited liability companies.
Corporation. Also called public limited companies, they are limited liability companies for profit, whose legal personality is different from that of its members, that is, it is managed by an administrative board, but is owned by a diverse set of shareholders, which can reach to be very broad. Whoever controls the majority of the shares will have greater amounts of power within the management of the company's interests.

Difference between private company and public company

The fundamental difference between a private company and a public one is, as we have said before, the ownership of its shares. That is, if the company belongs to the public or state sector, or to the private sector. However, other differences arise from this, such as:

Private companies pursue profitability above all else, while Public companies may have goals other than profits such as the redistribution of wealth or the defense of public interests.
Decision-making in private companies falls on their administrative committees, while in public companies are in line with government decisions.
The management and management of resources of private companies is usually freer and autonomous than in public companies, given that in the latter the owner is the State. Thus, for example, the sale of assets of public companies cannot occur without approval from government entities.

Examples of private companies

The following are examples of private companies from different countries:

Banco Bilbao Vizcaya Argentaria (BBVA). Spanish company dedicated to the financial and banking sector, with headquarters in Madrid and Bilbao, and agencies in numerous Latin American countries, Spain, the United States and Türkiye.
LATAM Airlines. Multinational aeronautical company based in Santiago, Chile, founded in 2010 by the merger of two much older airlines: the Chilean LAN (1929) and the Brazilian TAM (1961). It is the largest and most important airline in all of South America.
Anagrama Editorial. Spanish company founded in 1969 by the well-known editor Jorge Herralde and dedicated to the publication and sale of books in different literary and commercial collections. Its catalog is one of the most prestigious in the Spanish-language publishing world, and it annually awards two important prizes for unpublished works: the Anagrama Essay Prize and the Herralde Novel Prize.
Hyundai Motor Company. South Korean company in the automotive manufacturing industry, with headquarters in the city of Seoul. Founded in 1967, it is the sixth largest automobile manufacturer in the world.