We recently came across an article announcing “Dell shareholders approve $25 billion buyout to go private”. This headline likely attracted readers interested in Dell and what this transaction means for the company. It is also likely to attract readers interested in the dollar figure included in the headline. What we realized, however, is that some readers may be unaware of what it means when a corporation is referred to as a “private” company.
There are a number of different types of corporations. Some include private, public and not-for-profit.A not-for-profit corporation is a corporation which uses all of its revenues to further the purposes (or objects) of the corporation. Therefore, if a business is being incorporated to make a profit it is not a not-for-profit corporation. A not-for-profit corporation can be a charitable or non-charitable organization.A public corporation (also referred to as an offering corporation) is a corporation which offers its shares to the public. There are a number of legal requirements associated with being a public corporation. For example, a public corporation is required to compile disclosure documents at the time that it issues shares to the public.Finally, a private corporation is a corporation that does not fall under the two definitions listed above. It is generally owned by a small number of shareholders (in fact, it may be owned by only 1 shareholder). For this reason, it may also be referred to as a “closely held” business corporation. It does not issue its shares to the public. This type of corporate structure is not limited to “small businesses”, as can be seen by the announcement that Dell is going private.Overall, deciding the legal structure for a business is an important decision accompanied by various legal implications. Next time you see an announcement that a decision has been made to go public or a buyout has resulted in a corporation “going private”, we hope that you will have a better understanding of what this means.
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