What is a Public Company?

A public company, sometimes referred to as a publicly traded company, is a corporation whose shares are sold to and owned by the public at large. By doing so, public companies are able to raise funds to be invested back into the company and achieve the company’s objectives. Public companies typically trade their securities on either a registered stock exchange or through an over-the-counter (OTC) market.

Helping a public company grow by allowing the public to invest will initially start with an Initial Public Offering (IPO). An IPO is when a private company turns to stock markets to raise funds and in return, new shares are issued to the public for them to invest and buy. Once the shares are sold, the company can then be considered a public company and be able to actively trade within a larger pool of investors on the dedicated stock exchange.

Benefits of Being Public

By being a public company, there are a few key benefits that a business can take advantage of. These benefits include: a much wider access to capital and funds; increases market visibility; and, a larger free-float of shares for higher liquidity and for investors to actively trade.

Having a larger access to funds helps public companies grow much faster and expand their business as they have an additional source of capital available to create new products, research and development, hire more staff, and so forth.

Likewise, with an increase in market visibility, public companies can attract potential new investors, increase analyst following, generate publicity, and create positive momentum for the company.

Lastly, having a large free-float of shares available for investors to trade helps increase the liquidity of the stock and gives investors the ability to buy and sell easily. This is especially important for investors or institutions who are actively trading the stock.

Regulation

In addition to managing its funds, a public company must be wary of regulations that govern public companies such as public disclosure obligations, insider trading rules, and potential liability.

Public companies are required to disclose all their financial and business related information on a regular basis, in compliance with the regulations of their local stock exchange. This includes, but isn’t limited to, publishing financial statements, providing annual and audit reports, and filing any other corporate processes.

Under insider trading rules, public companies must also ensure that its directors, officers, and employees do not benefit from inside knowledge or any other unfair advantages to trade their stock in the stock exchange.

Finally, public companies are also potentially exposed to greater liabilities down the line. With a larger group of owners, the company is open to potential legal claims from shareholders in the form of a class action lawsuit or a derivative lawsuit.

Conclusion

Public companies can be beneficial for businesses that are looking to rapidly expand. With the ability to raise larger funds for investments and research, increase their market visibility, and increase the liquidity of their stock, public companies have an advantage over private companies when it comes to growth.

However, as with anything, there may come potential liabilities such as potential class action lawsuits should the company fail to comply with legal requirements. That being said, such risk can be mitigated depending on the performances and operations of the business.