These undertakings are owned, controlled and financed by private businessmen. There is no government participation in them. The main motive of private sector undertakings is to earn profits. Their main characteristics are as under:
(a) Private Ownership and Control:
A private sector undertaking is fully owned and controlled by the private entrepreneurs. It may be owned by one individual or by a group of individuals jointly. When owned by one person, it is called Sole Proprietorship. A group of persons may jointly own the firm in the form of joint Hindu family business, partnership, Joint Stock Company or cooperative society.
(b) Profit Motive:
The main objective of private sector undertakings is earning profits. Profits provide the reward for the risk assumed and the required return on capital.
(c) No State Participation:
There is no participation by the Central or State Governments in the ownership and control of a private sector undertaking.
(d) Private Finance:
The capital of a private sector undertaking is arranged by its owners. The sole trader contributes the capital of a sole proprietorship. In case of partnership, capital is invested by the partners. A joint stock company raises capital by the issue of shares and debentures. A private sector undertaking can also raise loans to meet its long-term and short-term needs for funds.
(e) Independent Management:
A private sector undertaking is managed by its owners. In case of sole proprietorship and partnership, the owners directly manage the firm. The management of a joint stock company lies in the hands of directors who are the elected representatives of the shareholders.