What are they?
A privately held company is owned by a relatively small number of shareholders. Privately held firms have fewer obligations to release financial statements and other information to the public. This saves money and frees the firm from disclosing information that might be helpful to its competitors.
How do they raise funds?
When private firms wish to raise funds, they sell shares directly to a small number of institutional or wealthy investors in a private placement. Rule 144A of the SEC allows them to make these placements without preparing the extensive and costly registration statements required of a public company. While this is attractive, shares in privately held firms do not trade in secondary markets such as a stock exchange, and this greatly reduces their liquidity and presumably reduces the prices that investors will pay for them
Limited number of investors
Until recently, privately held firms were allowed to have only up to 499 shareholders. This limited their ability to raise large amounts of capital from a wide base of investors. Thus, almost all of the largest companies in the U.S. have been public corporations.