Public company
A
public company is a
company owned by the
public rather than by a relatively few individuals. There are two different meanings for this term:
* A company that is owned by
stockholders who are members of the general public and trade
shares publicly, often through a listing on a
stock exchange. Ownership is open to anyone that has the
money and inclination to buy shares in the company. It is differentiated from
privately held companies where the shares are held by a small group of individuals, who are often members of one or a small group of families or otherwise related individuals, or other companies. The variant of this type of company in the
United Kingdom and
Ireland is known as a
public limited company.
* A
government-owned corporation. This meaning of a "public company" comes from the tradition of public ownership of assets and interests by and for the people as a whole, and is the less-common meaning in the
United States. See
public ownership."Publicly-owned company" can also have either meaning, although in the
United Kingdom it will usually refer to ownership by national, regional or local government.
The
de jure definition of a public company in the United States is defined as a public company is any company that files a Form S-1 with the
Securities and Exchange Commission (SEC) and raises money from the public. A public company is also a reporting company. Thus, a public company is any company with 300 or more shareholders as defined in the US 1933 Securities Act that elects to become a reporting company. Under the US 1934 Act, any company with 500 or more public shareholders or a company with some public shareholders and assets of $5 million dollars
must become a reporting company.
A public company has several advantages. It is able to raise funds and
capital through the sale of stock and
convertible bonds. This is the reason why public corporations are so important, historically; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. It has the ability to offer
stock and
stock options to directors, executives, and employees as part of compensation. This is much less advantageous if the company is required to treat stock options as an expense. Large stockholders, typically founders of the company, are able to sell off shares and get cash which they can put to other uses. In contrast, while ownership in a private corporation can also be sold, in part, determining a "fair value" that is acceptable to all parties can be difficult.
A private company has several advantages. It has no requirement to publicly disclose much, if any financial information; such information could be useful to competitors. For example,
Form 10-K is an
annual report required by the SEC each year that is a comprehensive summary of a company's performance. Private companies do not file form 10-Ks. It is less pressured to "make the numbers" - to meet quarterly projections for sales and profits, and thus in theory able to make decisions that are best in the long-run. It spends less for
certified public accountants and other
bureaucratic paperwork required of public companies by government regulations. For example, the
Sarbanes-Oxley Act in the United States does not apply to private companies. The wealth and income of the owners remains relatively unknown by the public.
The norm is for new companies, which are typically small, to be privately owned. After a number of years, if a company has grown significantly and is profitable, or has promising prospects, there is often an
initial public offering and the company becomes public.
Less common, but not unknown, is for a public company to pay cash to its shareholders and become private. This is typically done through a
leveraged buyout. Public companies can also become private when purchased by a larger company that is private.
The shares of a public company are traded on a
stock exchange. The value or "size" of a public company is called its
market capitalization, a term which is often shortened to "market cap". This is calculated as the number of shares outstanding (as opposed to authorized but not necessarily issued) times the price per share. For example, a company with two million shares outstanding and a price per share of $40 would have a market capitalization of $80 million.
*
Primary market*
Public benefit corporation*
Public limited company*
Public ownership*
Stock exchange*
Tender offer*
Wall StreetCompare
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Government-owned corporation*
Private company*
State-owned enterprise
