Corporate Business Structures | Structuring Your Business

Private Corporations

Information regarding Private Corporations and private corporate structures is provided in the following sub-sections:


Private corporate structures are private corporations that are owned and funded by a limited number of individuals. This may be as few as one owner or may be hundreds. Private corporations are considered a legal entity in and of themselves. Having separate legal status which provides limited liability to business owners.

Corporations have the legal right to conduct business under their own name and to engage in legal actions and contracts. All of a corporation's rights must be exercised by a company representative. This type of structure enables the representative to not be held personally responsible for actions undertaken on behalf of the corporation.

Private corporate structures may issue stock and have shareholders and they are owned by few number of shareholders. However, their shares do not trade on public exchanges and are not issued through an initial public offering.


If a stock offering is made to investors, they must receive a Private Placement Memorandum as defined by the Securities Act of 1933 and governed by the Securities Exchange Commission. Family owned companies using private family and friend investment and ownership are not required to provide a Private Placement Memorandum. However, they should still follow the legal requirements of issuing private stock in relation to the investment and company ownership.


There are specific Securities and Exchange Commission regulations that must be considered before choosing to implement Private Corporate structures. This is especially true if the possibility of offering company stock for sale to investors is a consideration.

Incorporating a business privately can help to avoid the administrative and legal expenses associated with following federal regulations and filing federally-mandated reports. Management control can be diluted in public corporations, to the point where company founders can find themselves with no input in the business whatsoever. Private corporations can get around this hurdle by offering shares only to parties who are sympathetic to the founders and original managers, or by offering them to the managers themselves. While private stockholders still have the power to vote-in board members and approve executive management, it is much easier to control who holds stock and voting power in the company.


Limited liability is one of the main benefits of private corporations. Shareholders cannot be held personally liable for the entity's debt obligations. Private corporations are not required to meet the same strict federal financial reporting standards mandated for publicly traded companies, however, they must comply with federal and state laws and court decisions.


An accredited investor is a sophisticated investor with large financial resources. Accredited investors must possess savvy financial experience with knowledge of various public and private financial markets. If the investor is an individual, he must have more than $200,000 annual income and have more than $1 million in net worth. Business and organization entities must have a minimum net worth of $5 minimum and not be formed exclusively to purchase securities.

RULE 504

  • Offerings under Rule 504 of Regulation D are limited to $1 million per 12 months and must be made to accredited investors meeting financial liquidity guidelines. With Rule 504 offerings, the private company is required to offer restricted securities or have exemptions where the company has delivered substantial public disclosure to investors. The company is not required to register securities with the Securities Exchange Commission, but it must file a Form D when offering securities with the contact information of company owners and stock promoters.

RULE 505

  • Under Rule 505 of Regulation D, a private corporation is exempt from having to register its securities by selling a maximum of $5 million in securities during a 12-month period. The investors must be accredited investors as defined in Section 5. The private company can offer stock to non-accredited investors but is limited to only 35 individuals. Stock purchases are restricted and cannot be sold for at least a year without registration. There are strict advertising and solicitation regulations that forbid active and random solicitation of the offering.

RULE 506

  • With a Rule 506 offering under Regulation D, a private corporation is given safe harbor when following strict guidelines in its offering. The company is not allowed to widely advertise and solicit for the securities and must follow the accredited investor guidelines as outlined in Section 5. Financial statements must be made available to holders of investor- and issue-restricted stock. Companies under Rule 506 offerings are able to raise unlimited amounts of money without registering. They must file a Form D when issuing the private stock.


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