What Is The Private Sector? (With Roles And Examples)

By Indeed Editorial Team

Updated 22 November 2022

Published 28 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The private sector is an essential part of the economy because it is a principal job provider and helps in urban and economic development. If you are starting your career or intend to switch careers, you may consider opportunities in the private sector because it focuses on profit-making and the interest of individuals. Learning more about the private sector can help you understand the segmentation of the companies for which you can work. In this article, we answer 'What is the private sector?', discover the roles and salient features of the sector, explore companies in this sector and understand the benefits of working in this sector.

What Is The Private Sector?

The answer to the question, 'What is the private sector?' is that it is a segment of the economy under the control of organisations and individuals whose primary aim is to make profits. Individuals and organisations own and manage a private sector company. A private sector company comes into existence through the privatisation of a public organisation or when an individual starts a new company. Companies operating in the private sector have no government ownership, but they can partner with the government in a private-public partnership.

This sector is important for developing the national economy because of the products and services the company provides and the taxes it pays to the government. Usually, private sector companies can stabilise the prices of products and services by creating fair market conditions. Companies working in this sector can impact employment, improve equality and control the sustainability of urban areas.

What Is The Role Of The Private Sector?

Here are some roles of this sector:

Generates employment

The private sector plays an essential role in generating employment opportunities. Usually, companies in this sector provide many jobs and provide employees with many benefits. Allowing private companies to enter the market is usually a long-term strategy for reducing unemployment.

Impacts the economy

Typically, the private sector contributes a significant amount to the national income. Apart from paying taxes, companies in this sector ensure an adequate flow of capital. These companies impact the economy by delivering vital goods and services.

Fosters entrepreneurship and innovation

Private sector companies are an integral aspect of fostering innovation and entrepreneurship and ensuring the future progress of an economy. These companies can provide sustainable infrastructure, use modern technology and create new products and services. They also create new and innovative business models and strategies. Often, these companies play a significant role in conducting research, working with universities and translating new research into the market.

Ensures environmental efficiency

This sector is essential for ensuring environmental efficiency because private companies have an inclination towards greener technologies. The sector uses new technologies to promote sustainability and efficiency and ensures better use of raw materials. Also, these companies enable more innovations and mobilisation of resources.

Ensures diversification in a business

The sector is extremely rich in opportunities because it allows new companies to deliver new products and services to the public. The private sector provides new companies with the opportunity to develop, regardless of the type of business they want to do. With such freedom, private companies can diversify their business operations.

Ensures economic and community development

Private companies launch new equipment, commodities, machinery and technology to ensure economic development. This helps attract potential investors who can then promote and scale up the company. Also, the private sector ensures community development by promoting cooperatives and community businesses.

Provides high-quality goods and services

Industries working in the private sector are competitive and they constantly focus on innovation to develop new products and services. These innovations can help in gaining customers' trust. With customer satisfaction, companies can manufacture more products and innovate services by producing goods that satisfy the market requirement.

What Are The Benefits Of Working In The Private Sector?

Some benefits of working in the private sector are:

Provides better career advancement

Private companies offer better career advancement opportunities. If a company notices that improving employees' skill set can increase profits, it might train their staff and upskill them. As a result, private sector employees might find more opportunities to work.

Ensures diversified job opportunities

Private companies can provide diversified job opportunities. An employee can easily find a job that matches their interest and skill set. This is because businesses in the public sector focus on providing specific services that may not provide so many opportunities.

Provides higher salaries

Due to the profit-making nature of private companies, they pay a higher salary than most public sector organisations. They may offer a broad range of salaries to employees depending on the industry in which the company works. Apart from higher salaries, these companies provide excellent incentives and benefits packages that include house rent allowance, insurance and leave travel concession.

What Are The Main Features Of The Private Sector?

Some features of this sector are:

Profit motive

The primary goal of companies in the private sector is to earn profits. When these companies adhere to the compliance and regulation of the country, they earn more profits than firms operating in the public sector. Increasing revenue and profit margins can motivate the private sector companies to enhance their efficiencies and seek talented employees.

Independent management

As the management of the private sector companies relies on the owners, they can make all strategic decisions related to business plans, objectives and operations. The owner is responsible for hiring, promoting and terminating employees. They also act on behalf of the company in legal matters.

Private finance

Private companies rarely receive financing from the government unless they are significant and large for a country. Most private companies get finance from their shareholders or owners. These companies can gain capital depending on the type of ownership. For instance, a joint-ownership company raises capital through various investment rounds while a sole proprietor raises capital from the owners, investors or partners.

No government participation

The government rarely controls these private businesses. This gives power to the owners to make their business decisions. It is essential for these companies to adhere to some government rules and regulations, including paying taxes.

Excellent work culture of employees

Employees of private companies maintain strong work ethics to remain competitive in their industry. The competitive attitude of employees creates a positive and healthy work culture that motivates employees to excel in the workplace. Such a work culture provide employees with performance-based growth and development.

What Are The Types Of Companies In The Private Sector?

Here are a few types of companies that can operate in the private sector:

Sole proprietorship

A sole proprietorship is an enterprise owned and run by a single person or individual. This private sector company does not create a separate legal entity from the owner. The identity of a sole proprietor is the same as a business entity. A sole proprietor can operate using their legal name or choose a different name for the business. Some common examples of a sole proprietorship are:

Freelancers including copywriting, designers, IT professionals
Tradesperson, including electricians and builders
Self-employed artists, including musicians, painters
Other professionals such as technicians, contractors

Partnership firms

A business partnership is a private sector company with two or more individuals. Based on the partnership agreement, these partners share the business's risk, cost, and profits. The partners can be two individuals or one individual and one business. For instance, two limited companies can create a business partnership. Some common types of partnership firms include limited partnerships and limited liability partnerships (LLPs). A few examples of partnership business are:

Accounting firms
Law firms
Dentistry
Creative agencies
Doctor clinics

Large multinational corporations

Though the share of large multinational corporations is low in the private sector, the companies contribute a large portion to economic development and provide employment. These businesses result in large profits and also work towards community development. Some examples of large multinational corporations are:

Private banks and insurance companies
Construction and mining companies
Information technology companies
Automobile manufacturers
Fast-moving goods and services companies

Non-profit organisations

Non-profit organisations form a small part of the private sector but are essential for social movements. They primarily focus on environmental protection, equal rights and social services. The primary goal of a non-profit organisation is not generating profits. They work towards community building. These companies need finances to continue their efforts and give salaries to their employees. Also, most non-profit organisations receive tax considerations from the government.