Public company

New York Stock Exchange Facade 2015

Public company refers to a corporation that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in the over-the-counter market. Public companies are subject to significant regulatory oversight and must disclose financial, operational, and managerial information regularly to the public, allowing shareholders and potential investors to evaluate the company's performance and prospects.

Overview

A public company is created when a private company decides to go public through an IPO, selling shares of stock to the general public for the first time. This process allows a company to raise capital from public investors. The transition from a private to a public company can be a critical moment for private investors to fully realize gains from their investment as shares in a public company are more liquid than in a private one.

Regulatory Environment

Public companies in the United States are primarily regulated by the U.S. Securities and Exchange Commission (SEC), which requires regular filing of financial statements and other disclosures. Key filings include the Form 10-K (annual report), Form 10-Q (quarterly report), and Form 8-K (current reports on significant events). Similar regulatory bodies exist in other countries, such as the Financial Conduct Authority (FCA) in the United Kingdom.

Advantages and Disadvantages

The primary advantage of being a public company is the ability to access a larger pool of capital through the sale of stock. Public companies can also use their shares as a form of currency for acquisitions and to attract and retain employees through stock compensation plans.

However, public companies face disadvantages, including the costs of compliance with regulatory requirements, the need to disclose competitive information, and the pressures of short-term performance expected by investors.

Listing Requirements

To be listed on a stock exchange, a company must meet specific financial, regulatory, and corporate governance standards. These requirements vary by exchange but typically include minimum shareholder equity, a minimum share price, and a minimum number of shareholders.

Corporate Governance

Public companies are required to have a board of directors elected by the shareholders. The board oversees the company's management and ensures that the company's actions align with the best interests of the shareholders. Corporate governance practices and requirements can vary significantly between jurisdictions but generally include provisions for shareholder voting rights, regular shareholder meetings, and the disclosure of significant financial and operational information.

Market Capitalization

The market capitalization of a public company is determined by multiplying the current stock price by the total number of outstanding shares. This metric is used to classify companies into different sizes, such as small-cap, mid-cap, and large-cap.

Conclusion

Public companies play a crucial role in the global economy, providing a mechanism for businesses to access capital and for investors to participate in the financial markets. While offering numerous advantages, public companies also face significant regulatory requirements and scrutiny from investors and the public.