My understanding was that a legal entity can make private
    modifications to GPL software and is allowed to keep those
    modifications private,

That is our interpretation.  In other words, using a copy
within the company is not distribution to others.

    So, since a corporation is allowed to make private changes, I don't
    see why they could not instruct their employees to keep those changes
    private to the company.

I believe that they can.

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