Public company

3 key takeaways

• A public company offers its shares to the general public through stock exchanges.
• It must comply with extensive regulatory requirements and disclosure obligations.
• Public companies can raise significant capital by selling shares to a wide range of investors.

What is a Public Company?

A public company is a corporation whose ownership is distributed among general public shareholders through the free trading of its shares on stock exchanges or over-the-counter markets. These companies are listed on public stock exchanges like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE), making it possible for anyone to buy or sell their shares. Public companies are required to disclose detailed financial and operational information regularly to ensure transparency and protect investors.

Importance of a Public Company

• Access to Capital: Public companies can raise large amounts of capital by issuing shares to a broad base of investors.
• Market Liquidity: Shares of public companies are more liquid, allowing investors to buy and sell them easily.
• Transparency: Stringent regulatory requirements ensure transparency and accountability, building investor confidence.

How a Public Company Works

Initial Public Offering (IPO)

To become a public company, a private company must go through an initial public offering (IPO). This process involves issuing new shares to the public for the first time and listing them on a stock exchange. An IPO requires detailed financial disclosures, regulatory approval, and the involvement of investment banks.

Regulatory Compliance

Public companies must adhere to strict regulatory standards set by securities authorities, such as the U.S. Securities and Exchange Commission (SEC) or the Financial Conduct Authority (FCA) in the UK. These regulations mandate regular financial reporting, governance practices, and shareholder communication.

Share Trading

Shares of public companies are traded on stock exchanges, providing liquidity and enabling shareholders to buy and sell shares freely. The market price of the shares fluctuates based on supply and demand, company performance, and broader economic factors.

Corporate Governance

Public companies are typically governed by a board of directors elected by shareholders. The board oversees the company’s management and ensures that it acts in the shareholders’ best interests. Public companies also hold annual general meetings (AGMs) where shareholders vote on key issues.

Examples of Public Companies

• Apple Inc. (AAPL): A technology giant listed on the NASDAQ stock exchange, known for its consumer electronics and software.
• Toyota Motor Corporation (TM): A leading automobile manufacturer listed on the Tokyo Stock Exchange and the NYSE.
• HSBC Holdings plc (HSBC): A multinational banking and financial services company listed on the LSE and the Hong Kong Stock Exchange.

Real-world Application

• Capital Raising: Public companies often raise additional capital through secondary offerings, enabling them to finance growth, acquisitions, or new projects.
• Stock Market Performance: Investors track the performance of public companies through stock market indices, which reflect broader economic trends and investor sentiment.
• Corporate Accountability: The transparency and accountability required of public companies can enhance corporate governance and operational efficiency, benefiting shareholders and stakeholders alike.