Privatization

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DEFINITION of 'Privatization'

1. The transfer of ownership of property or businesses from a government to a privately owned entity.

2. The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. When a publicly traded company becomes private, investors can no longer purchase a stake in that company.

BREAKING DOWN 'Privatization'

1. One of the main arguments for the privatization of publicly owned operations is the estimated increases in efficiency that can result from private ownership. The increased efficiency is thought to come from the greater importance private owners tend to place on profit maximization as compared to government, which tends to be less concerned about profits.

2. Most companies start as private companies funded by a small group of investors. As they grow in size, they will often access the equity market for financing or ownership transfer through the sale of shares. In some cases, the process is subsequently reversed when a group of investors or a private company purchases all of the shares in a public company, making the company private and, therefore, removing it from the stock market.

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