Loading the player...

What is '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 in over-the-counter markets. 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 originated from private companies that, after meeting all regulatory requirements, opted to become public in an effort to raise large amounts of capital. Examples of public companies include Google Inc., F5 Networks Inc., Chevron Corporation, and Procter & Gamble Co.

Advantages and Disadvantages of Public Companies

Public companies have certain inherent advantages over private companies, including the ability to sell future equity stakes and increase access to 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.

However, with these advantages 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 is public, it must answer to its shareholders. For example, certain corporate structure changes and amendments must be presented for shareholder votes. 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 by 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.

From Public to Private

In situations where a public company no longer wishes to operate within 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 will be delisted from its associated stock exchanges and return to private operations.

RELATED TERMS
  1. Public Offering

    A public offering is an organization’s sale of equity shares ...
  2. General Public Distribution

    A general public distribution is a primary market offering in ...
  3. Private Company

    A private company is a company held under private ownership with ...
  4. IRS Publication 17

    IRS Publication 17 is a document published by the Internal Revenue ...
  5. Offering

    An offering is the issue or sale of a security by a company. ...
  6. Crossover Fund

    A crossover fund is an investment fund that holds both public ...
Related Articles
  1. Investing

    Methods used in valuing private companies

    There are a few methods for calculating the valuation of a private company. By using financial information from peer groups, we can estimate the valuation of a target firm.
  2. Insurance

    Initial Public Offering (IPO) Explained

    An initial public offering (IPO) marks the start of a company's publicly traded life. Find out why companies undergo IPOs, and how the process works.
  3. Investing

    Private vs Public Equity: What's Best?

    What is the better way for a company to attract investors; by making its stock available for sale to whoever wants some, or by petitioning rich people?
  4. Small Business

    Public Vs. Private Tech Valuations: What's Driving the Divide?

    The gross valuations over the past five years are more indicative of the market than the true value of the company itself.
  5. Managing Wealth

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  6. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  7. Investing

    5 Central Banks That Are Publicly Traded

    Learn about five central banks that have publicly traded shares. Explore shareholder voting and dividend rights for public and private holders.
  8. Investing

    4 Reasons for the IPO Market Slowdown in 2016 (IPO)

    Pay attention to the length of time a company waits before going public and whether the prolonged period brings excessive valuation.
  9. Know Your Shareholder Rights

    Common-stock owners have numerous privileges and should be vigilant in monitoring a company.
RELATED FAQS
  1. What are the different types of IPO issued?

    Learn about the two ways for a company to go public: fixed price and book building. Under fixed price, the share price is ... Read Answer >>
  2. What are Some Advantages of Raising Capital Through Private Placement?

    Understand how a business can raise capital through private placement and the benefits business owners receive through this ... Read Answer >>
  3. Move from an OTC to a major exchange

    In order to move a company from over-the-counter market to a major exchange, a number of conditions must be met to being ... Read Answer >>
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center