Public Company

Definition and Overview

A public company or a publicly traded company is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets. The shares of such companies are often held by institutional investors, while retail investors can also own shares.

History

The concept of a public company dates back to ancient Rome, where publicani, or public contractors, would bid on contracts for certain services. These early public companies were structured similarly to modern corporations, with shareholders and a board of directors. The first modern public company was the Dutch East India Company, established in 1602. It was the first company to issue bonds and shares of stock to the general public.

Characteristics

Public companies have certain distinguishing characteristics. They are required to disclose certain information about their operations, financial condition, and management to the public. This is done through the filing of reports and financial statements with the Securities and Exchange Commission (SEC) in the United States, or similar regulatory bodies in other countries.

Public companies are also subject to governance and accountability standards, such as the requirement to have a board of directors and to hold annual meetings of shareholders. These companies are also subject to market pressures, as their stock prices can fluctuate based on investor perceptions and market trends.

Advantages and Disadvantages

There are several advantages to being a public company. These include access to capital through the sale of stock, increased visibility and credibility, and the ability to use stock as a form of currency for acquisitions.

However, there are also disadvantages. Public companies face increased scrutiny from regulators, shareholders, and the public. They must also adhere to strict reporting requirements and are subject to market pressures that can affect stock prices.

Public Company vs Private Company

Public companies differ from private companies in several ways. The most significant difference is that public companies have the ability to sell shares of stock to the public, while private companies do not. This allows public companies to raise capital more easily, but it also subjects them to more regulation and scrutiny.

Private companies, on the other hand, are typically owned by a small group of individuals or entities. They are not required to disclose as much information to the public, and they are not subject to the same level of regulation as public companies.

Process of Going Public

The process of a private company becoming a public company is known as an Initial Public Offering (IPO). This process involves a series of steps, including the selection of an underwriter, the filing of a registration statement with the SEC, and the pricing and sale of shares to the public.

Regulation

Public companies are subject to regulation by various governmental and non-governmental entities. In the United States, the primary regulatory body is the SEC, which enforces the securities laws and regulations. Other countries have similar regulatory bodies.