Public Company

What is a publicly traded company?

A publicly traded (or public) company is a corporation whose ownership shares are available for purchase and sale by the general public on stock exchanges or over-the-counter (OTC) markets. Public companies must disclose financial and business information regularly and comply with securities regulations.

How it works

• Initial public offering (IPO): A private company goes public by issuing shares in an IPO, often with the help of investment banks that set the offering price, market the issuance, and advise on timing. IPOs raise capital to fund growth and expansion.
• Trading venues: After an IPO, shares trade on exchanges (e.g., NYSE, NASDAQ) or OTC markets. Market price is determined by supply and demand.
• Registration thresholds: In the U.S., companies with at least $10 million in assets and either 2,000 shareholders (or 500 or more unaccredited investors) must register with the SEC and follow public reporting rules.
• Reporting obligations: Public companies must file regular reports with the SEC (examples below) to ensure transparency for investors and regulators.

Key regulatory filings

• Form 10-K — annual comprehensive financial report
• Form 10-Q — quarterly financial reports
• Form 8-K — current report for significant events (e.g., acquisitions, director changes)

Reporting requirements and related reforms were strengthened by legislation such as the Sarbanes-Oxley Act to reduce fraudulent reporting and improve corporate governance.

Advantages

• Access to capital: Sell equity (shares) or debt (corporate bonds) to finance growth, R&D, acquisitions, and other investments.
• Liquidity and valuation: Public trading provides liquidity for shareholders and an ongoing market valuation.
• Visibility and credibility: Public listing can raise brand recognition and signal operational scale, especially on major exchanges.

Disadvantages

• Regulatory burden: Ongoing disclosure, compliance, audit, and governance requirements increase administrative and legal costs.
• Loss of control: Founders and majority owners may face diluted control and must answer to shareholders and an elected board.
• Expense: IPO costs and recurring expenses (investor relations, SEC filings, Sarbanes-Oxley compliance) can be substantial.

Special considerations: going private

A public company may revert to private ownership (a “take-private” transaction) if owners want to reduce regulatory burdens or pursue long-term strategies away from quarterly scrutiny. Typically:
* A private equity firm or consortium acquires outstanding shares.
* Financing often involves loans or investment-bank arranged financing.
* Successful takeover leads to delisting and termination of public reporting requirements.

Related terms

• Reporting company: Another term for a company that must file reports with the SEC. A company can become a reporting company either through an IPO or by registering a class of securities with the SEC.
• Beneficial owner: An individual or entity that directly or indirectly owns or controls 25% or more of a reporting company; such ownership must be reported under beneficial ownership rules.
• Exchange-traded fund (ETF): Not a public company in the traditional corporate sense, but ETF shares trade on exchanges like stocks and can be bought through brokerage accounts.

Examples

Large, well-known public companies include Chevron, McDonald’s, and Procter & Gamble.

Bottom line

Public companies offer investors an ownership stake with liquidity and transparency but face significant regulatory, governance, and cost considerations. Many individual investors gain exposure to public companies indirectly through mutual funds, pensions, and ETFs.

Sources

• U.S. Securities and Exchange Commission (SEC) — guidance on public companies, reporting, and ETFs
• Sarbanes-Oxley Act (corporate reporting reforms)
• Financial Crimes Enforcement Network — beneficial ownership reporting guidance