what is a public company 
a public company is a corporation whose shareholders have a claim to part of the company s assets and profits it s also called a publicly traded company this type of company is called a public limited company plc in the united kingdom ownership of a public company is distributed among general public shareholders through the free trade of shares of stock on stock exchanges or over the counter otc markets a public company is required to disclose its financial and business information regularly to the public in addition to its securities trading on public exchanges a company is considered a public company by the u s securities and exchange commission sec if it has public reporting requirements 1understanding a public companymost public companies were once private companies that were owned by their founders management or a group of private investors private companies don t have any public reporting requirements a company is required to conform to public reporting requirements when it meets any of certain criteria an ipo is the process by which a private company begins to offer shares to the public in a new stock issuance a company is considered to be private before completing an ipo issuing shares to the public through an ipo is very important for a company because it provides it with a source of capital to fund growth examples of public companies include chevron corporation mcdonald s and the procter gamble company 2a company must meet certain requirements to complete an ipo both regulations set forth by the regulators of the stock exchange where it hopes to list its shares and those set forth by the sec a company usually hires an investment bank to market its ipo determine the price of its shares and set the date of its stock issuance a company typically offers its current private investors share premiums when it undergoes an ipo as a way of rewarding them for their prior private investment in the company the u s securities and exchange commission sec states that any company in the u s with 2 000 or more shareholders or 500 or more shareholders that are not accredited investors must register with the sec as a public company and adhere to its reporting standards and regulations 3advantages of public companiespublic companies have certain advantages over private companies they have access to the financial markets and can raise money for expansion and other projects by selling stock or bonds a stock is a security that represents a fraction of ownership in a corporation selling stocks allows the founders or upper management of a company to liquidate some of their equity in the company a corporate bond is a type of loan issued by a company to raise capital an investor who purchases a corporate bond is effectively lending money to the corporation in return for a series of interest payments these bonds may also actively trade on the secondary market in some cases there s some clout attached to being a publicly traded company and having your stocks trade on a major market like the new york stock exchange because a company must have achieved a certain level of operational and financial size and success to transition to being publicly traded disadvantages of public companiesthe ability to access the public capital markets also comes with increased regulatory scrutiny administrative and financial reporting obligations and corporate governance bylaws with which public companies must comply this results in less control for the majority owners and founders of the corporation there are also substantial costs to conducting an ipo as well as the ongoing legal accounting and marketing costs of maintaining a public company public companies must meet mandatory reporting standards regulated by government entities and they must file reports with the sec on an ongoing basis the sec sets stringent reporting requirements these include the public disclosure of financial statements and an annual financial report called a form 10 k that gives a comprehensive summary of a company s financial performance companies must also file quarterly financial reports called forms 10 q and current reports on form 8 k to report when certain events occur these events include the election of new directors or the completion of an acquisition these reporting requirements were established by the sarbanes oxley act a set of reforms intended to prevent fraudulent reporting 3 qualified shareholders are also entitled to specific documents and notifications about the corporation s business activities a company must answer to its shareholders when it s public shareholders elect a board of directors who oversee the company s operations on their behalf certain activities such as mergers and acquisitions and some corporate structure changes and amendments must be brought up for shareholder approval this effectively means that shareholders can control many of the company s decisions special considerationsthere may be some situations where a public company no longer wants to operate within the business model required of a public company there are many reasons why a public company may decide to go private it may decide that it doesn t want to have to comply with the costly and time consuming regulatory requirements of being a public company or it might want to free up its resources to devote to research and development r d capital expenditures and funding pension plans for its employees a take private transaction is necessary when a company transitions to private a private equity firm or a consortium of private equity firms either purchases or acquires all the outstanding stock of the publicly listed company this sometimes requires the private equity firm to secure additional financing from an investment bank or another type of lender that can provide enough loans to help finance the deal the company will be delisted from its associated stock exchanges and will return to private operations when the purchase of all the outstanding shares is complete 