Privately Held Company - Reporting Obligations and Restrictions

Reporting Obligations and Restrictions

Privately held companies generally have fewer or less comprehensive reporting requirements for transparency, via annual reports, etc. than do publicly traded companies. For example, in the United States, unlike in Europe, privately held companies are not generally required to publish their financial statements. By not being required to disclose details about their operations and financial outlook, private companies are not forced to disclose information that may potentially be valuable to competitors and can avoid the immediate erosion of customer and stakeholder confidence in the event of financial duress. Further, with limited reporting requirements and shareholder expectations, private firms are afforded a greater operational flexibility by being able to focus on long term growth rather than quarterly earnings. In addition, private company executives may steer their ships without shareholder approval, allowing them to take significant action without delays. In Australia, Part 2E of the Corporations Act 2001 requires that publicly traded companies file certain documents relating to their annual general meeting with the Australian Securities and Investments Commission, while there is no similar requirement for privately held companies.

Privately held companies also sometimes have restrictions on how many shareholders they may have. For example, the U.S. Securities Exchange Act of 1934, section 12(g), limits a privately held company, generally, to fewer than 2000 shareholders, and the U.S. Investment Company Act of 1940, requires registration of investment companies that have more than 100 holders. In Australia, section 113 of the Corporations Act 2001 limits a privately held company to fifty non-employee shareholders.