Private corporations are business entities established through local secretaries of state. Corporations issue stock to owners who manage the company via a board of directors. Private corporations can be large or small, and are not registered with the Securities and Exchange Commission to have stock publicly traded. The primary goal of private corporations is profit, though there are secondary reasons for establishing the private business entity.
A primary goal for many private corporation founders is to reduce liability between the owners and the business. Assets and liabilities are separated between the business and the stock holders. Those who own stock are not held responsible for financial or civil liabilities of the corporation. Likewise, if the the stock owners have personal financial or civil issues, the corporate assets cannot be used to pay off corporate debts.
Private corporations raise capital by selling stock to owners and investors. Corporate goals may include using the structure to sell stock and raise operating or growth funding. Unlike public corporations, small private entities can sell stock without major SEC filings and expenses. Private corporations stock sales must still adhere to SEC regulations, generally raising less than $10 million. The corporate structure allows this type of capital investment and also allows business owners to sell ownership interest in buy-out scenarios.
A goal for many private corporation owners is to create an unlimited life. Unlike sole proprietorship and partnership entities that end when an owner dies or leaves the company, a corporation can exist forever. Stock owners can sell, gift or bequeath shares to family members, other stock owners or interested third-party investors. This goal is often part of estate planning for small business owners.
Under certain tax circumstances, a private corporation is more advantageous than a sole proprietorship that passes all taxes directly to the owner. Corporations generating less than $75,000 in taxable revenues have a lower tax rate than personal income tax rates. A small business owner generating small revenues might form a private corporation for the tax advantages, though each scenario is different and should be reviewed with a tax professional.
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