What is a 'Public Company'
A public company is a company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or the over-the-counter market. Although a small percentage of shares may be initially floated to the public, becoming a public company allows the market to determine the value of the entire company through daily trading.
BREAKING DOWN 'Public Company'Public companies are publicly traded within the open market with shares being purchased by a variety of investors. Most public companies were originally private companies that chose to go public and met all of the regulatory requirements. Examples of public companies include Google Inc., F5 Networks Inc., Chevron Corporation and Procter & Gamble Co.
Advantages and Disadvantages
Public companies have certain inherent advantages over private companies, including the ability to sell future equity stakes and increased access to the debt markets. Once a company goes public, additional revenue can be generated through additional offerings, which involve the creation and sale of new shares within the marketplace.
With these advantages, however, comes increased regulatory scrutiny and less control for majority owners and company founders. Public companies must meet mandatory reporting standards as regulated through government entities. Additionally, applicable shareholders are entitled to documents and notifications regarding the activities transpiring within the business upon which they hold an interest.
Public Company Operations and Shareholder Interests
Once a company goes public, it has to answer to its shareholders. For example, certain corporate structure changes and amendments must be presented for a shareholder vote. Shareholders can vote with their dollars by bidding up the company to a premium valuation or selling it to a level below its intrinsic value.
Public Company Reporting and Disclosure Requirements
Stringent reporting requirements are set by the U.S. Securities and Exchange Commission (SEC), including the public disclosure of financial statements and annual 10-K reports discussing the state of the company. This ensures that public companies adhere to all rules established via the Sarbanes-Oxley Act and as enforced by the SEC. Each stock exchange also has specific financial and reporting guidelines that govern whether a stock is allowed to be listed for trading.
In situations where a public company no longer wishes to operate with that business model, it can return to a privately held state by buying back all outstanding shares from current shareholders. Once the purchase is complete, the company can be delisted from its associated stock exchanges and return to private operations.