Privatization

Privatization refers to the procedure in which an enterprise owned by the public sector is transferred to the private sector. In other words, the transfer of a government-owned business to private ownership. It also refers to the transfer of any function of the government, like law enforcement or tax collection, to the private sector.

The term privatization has also been applied in defining two types of transactions. It can be a complete buyout of all shares of a holding company’s stock or a public enterprise by the majority owner, thus privatizing the stock which was publicly traded. Again, the formation of a joint-stock company by the demutualization of a cooperative or a mutual organization is also termed as privatization.

Privatization Methods

Privatization is done using the following three methods:

• Asset sale privatization means the selling of the whole or part of the enterprise to an investor.
• Share issue privatization occurs when the shares of an enterprise are sold in the stock market.
• Voucher privatization ownership shares are allocated to all citizens for free or for a nominal charge.

Of these above-mentioned methods of privatization, the share issue privatization is the most common one in use.

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