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A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, with a specific objective. Company members share a common ...

company
whose ownership is organized via shares of
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities in ...
which are intended to be freely traded on a
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
or in
over-the-counter Over-the-counter (OTC) drugs are medicine Medicine is the Art (skill), art, science, and Praxis (process) , practice of caring for a patient and managing the diagnosis, prognosis, Preventive medicine, prevention, therapy, treatment or Palliat ...
markets. A public company can be listed on a stock exchange (
listed company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of share capital, stock which are intended to be freely traded on a stock e ...
), which facilitates the trade of shares, or not (
unlisted public company An unlisted public company is a public company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of stock which are intended ...
). In some jurisdictions, public companies over a certain size must be listed on an exchange. In most cases, public companies are private enterprises in the private sector, and "public" emphasizes their reporting and trading on the public markets. Public companies are formed within the
legal system The contemporary national legal systems are generally based on one of four basic systems: civil law (legal system), civil law, common law, statutory law, religious law or combinations of these. However, the legal system of each country is shaped b ...
s of particular states, and therefore have associations and formal designations which are distinct and separate in the polity in which they reside. In the
United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., federal di ...

United States
, for example, a public company is usually a type of
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
(though a corporation need not be a public company), in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shortha ...

United Kingdom
it is usually a
public limited company A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, some Commonwealth of Nations, Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company wh ...
(plc), in France a "
société anonyme S.A. or SA designates a type of public company in certain countries, most of which have a Romance languages, Romance language as its official language and employ civil law (legal system), civil law. An SA is roughly equivalent to a public limite ...
" (SA), and in Germany an
Aktiengesellschaft (; abbreviated AG, ) is a German word for a corporation limited by Share (finance), share ownership (i.e. one which is owned by its shareholders) whose shares may be traded on a stock market. The term is used in Germany, Austria, Switzerland (wh ...
(AG). While the general idea of a public company may be similar, differences are meaningful, and are at the core of
international law International law, also known as public international law and law of nations, is the set of rules, norms, and standards generally accepted in relations between nations. It establishes normative guidelines and a common conceptual framework to guide ...
disputes with regard to industry and trade.


History

In the early modern period, the Dutch developed several financial instruments and helped lay the foundations of the modern financial system. The
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate organization that owns or controls the pro ...

Dutch East India Company
(VOC) became the first company in history to issue bonds and
shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known ...
of
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities in ...

stock
to the general public. In other words, the VOC was officially the first publicly traded company, because it was the first company ever to be actually
listed Listed may refer to: * Listed, Bornholm, a fishing village on the Danish island of Bornholm * Listed (MMM program), a television show on MuchMoreMusic * Endangered species in biology * Listed building, in architecture, designation of a historically ...
on an official
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredients necessary to produce a fully fledged
capital market 200px, The trading floor of the New York Stock Exchange, one of the largest secondary capital markets in the world. Most of the trades on the New York Stock Exchange are executed electronically, but its hybrid structure allows some trading to be ...
: corporate shareholders.


Securities

Usually, the securities of a publicly traded company are owned by many investors while the shares of a
privately held company A privately held company, private company, or close corporation is a corporation not owned by the government, non-governmental organizations and by a relatively small number of shareholders or company members, which does not offer or trade its com ...
are owned by relatively few shareholders. A company with many shareholders is not necessarily a publicly traded company. In the United States, in some instances, companies with over 500 shareholders may be required to report under the
Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stock Stock (also capital stock) is all of the shares into which ow ...
; companies that report under the 1934 Act are generally deemed public companies.


Advantages and disadvantages


Advantages

Public companies possess some advantages over privately held businesses. * Publicly traded companies are able to raise funds and
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
through the sale (in the primary or secondary market) of shares of
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities in ...

stock
. This is the reason publicly traded corporations are important; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises - significant capital could only come from a smaller set of wealthy investors or banks willing to risk typically large investments. The profit on stock is gained in form of
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
or
capital gain Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and econ ...
to the holders. * The financial media, analysts, and the public are able to access additional information about the business, since the business is commonly legally bound, and naturally motivated (so as to secure further capital), to publicly disseminate information regarding the financial status and future of the company to its many shareholders and the government. * Because many people have a vested interest in the company's success, the company may be more popular or recognizable than a private company. * The initial shareholders of the company are able to share risk by selling shares to the public. If one were to hold a 100% share of the company, he or she would have to pay all of the business's debt; however, if an individual were to hold a 50% share, they would only need to pay 50% of the debt. This increases asset liquidity and the company does not need to depend on funding from a bank. For example, in 2013
Facebook Facebook is an American online social media Social media are interactive technologies that allow the creation or sharing/exchange of information, ideas, career interests, and other forms of expression via virtual communities and Network ...

Facebook
founder
Mark Zuckerberg Mark Elliot Zuckerberg (; born ) is an American media magnate, internet entrepreneur, and Philanthropy, philanthropist. He is known for co-founding Meta Platforms, Meta Platforms, Inc. (formerly named Facebook, Inc.) and serves as its chairma ...
owned 29.3% of the company's class A shares, which gave him enough voting power to control the business, while allowing Facebook to raise capital from, and distribute risk to, the remaining shareholders. Facebook was a privately held company prior to its
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors. An IPO is typically underwritten by one or more investment ...
in 2012. * If some shares are given to managers or other employees, potential conflicts of interest between employees and shareholders (an instance of principal-agent problem) will be remitted. As an example, in many tech companies, entry-level software engineers are given stock in the company upon being hired (thus they become shareholders). Therefore, the engineers have a vested interest in the company succeeding financially, and are incentivized to work harder and more diligently to ensure that success.


Disadvantages

Many stock exchanges require that publicly traded companies have their accounts regularly
audited An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditing ...
by outside auditors, and then publish the accounts to their shareholders. Besides the cost, this may make useful information available to competitors. Various other annual and quarterly reports are also required by law. In the United States, the
Sarbanes–Oxley Act Sen. MD)_(left)_and_United_States_House_of_Representatives.html" ;"title="Maryland.html" ;"title="Democratic_Party_(United_States).html" ;"title="Paul Sarbanes (Democratic Party (United States)">D–Maryland">MD) (left) and United States House ...
imposes additional requirements. The requirement for audited books is not imposed by the exchange known as OTC Pink. The shares may be maliciously held by outside shareholders and the original founders or owners may lose benefits and control. The principal-agent problem, or the agency problem is a key weakness of public companies. The separation of a company's ownership and control is especially prevalent in such countries as the UK and the US.


Stockholders

In the United States, the
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is a large independent agencies of the United States government, independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary ...
requires that firms whose stock is traded publicly report their major
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal en ...
s each year. The reports identify all institutional shareholders (primarily, firms owning stock in other companies), all company officials who own shares in their firm, and any individual or institution owning more than 5% of the firm's stock.


General trend

For many years, newly created companies were privately held but held
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors. An IPO is typically underwritten by one or more investment ...
to become publicly traded company or to be acquired by another company if they became larger and more profitable or had promising prospects. More infrequently, some companies — such as investment banking firm
Goldman Sachs The Goldman Sachs Group, Inc. () is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage Prime ...

Goldman Sachs
and logistics services provider
United Parcel Service United Parcel Service (UPS, stylized as ups) is an American multinational corporation, multinational package delivery, shipping & receiving and supply chain management company founded in 1907. Originally known as the American Messenger Company s ...
(UPS) — chose to remain privately held for a long period of time after maturity into a profitable company. However, from 1997 to 2012, the number of corporations publicly traded on American stock exchanges dropped 45%. According to one observer ( Gerald F. Davis), "public corporations have become less concentrated, less integrated, less interconnected at the top, shorter lived, less remunerative for average investors, and less prevalent since the turn of the 21st century". Davis argues that technological changes such as the decline in price and increasing power, quality and flexibility of
computer numerical control Numerical control (also computer numerical control, and commonly called CNC) is the automated control of machining truck of the US Army with machinists working on automotive parts Machining is a process in which a material (often metal) is cut ...
machines and newer digitally enabled tools such as
3D printing 3D printing, or additive manufacturing, is the construction of a three-dimensional object from a CAD Computer-aided design (CAD) is the use of computers (or ) to aid in the creation, modification, analysis, or optimization of a design. Th ...
will lead to smaller and more local organization of production.


Privatization

In corporate privatization, more often called " going private", a group of private investors or another company that is privately held can buy out the shareholders of a public company, taking the company off the public markets. This is typically done through a
leveraged buyout A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (Leverage (finance), leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as coll ...
and occurs when the buyers believe the securities have been undervalued by investors. In some cases, public companies that are in severe financial distress may also approach a private company or companies to take over ownership and management of the company. One way of doing this would be to make a
rights issue A rights issue or rights offer is a dividend of subscription rightsA pre-emption right, right of pre-emption, or first option to buy is a contractual right Rights are law, legal, social, or ethics, ethical principles of Liberty, freedom or entitl ...
designed to enable the new investor to acquire a
supermajority A supermajority, supra-majority, qualified majority, or special majority is a requirement for a proposal to gain a specified level of support which is greater than the threshold of more than one-half used for a majority A majority, also calle ...
. With a super-majority, the company could then be relisted, i.e. privatized. Alternatively, a publicly traded company may be purchased by one or more other publicly traded companies, with the target company becoming either a
subsidiary A subsidiary, subsidiary company or daughter company is a company (law), company owned or controlled by another company, which is called the parent company, parent, or holding company. The subsidiary can be a company, corporation, or limited liabil ...
or
joint venture A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to access ...
of the purchaser(s), or ceasing to exist as a separate entity, its former shareholders receiving compensation in the form of either cash, shares in the purchasing company or a combination of both. When the compensation is primarily shares then the deal is often considered a
merger In corporate finance, mergers and acquisitions (M&A) are transactions in which the ownership of Company, companies, other business organizations, or their operating units are transferred or Consolidation (business), consolidated with other entit ...
. Subsidiaries and joint ventures can also be created ''
de novo In general usage, ''de novo'' (literally 'of new') is Latin expression used in English to mean 'from the beginning', 'anew'. De novo may also refer to: Biology * ''De novo'', mutation, an alteration in a gene that is present for the first time in ...
'' — this often happens in the financial sector. Subsidiaries and joint ventures of publicly traded companies are not generally considered to be privately held companies (even though they themselves are not publicly traded) and are generally subject to the same reporting requirements as publicly traded companies. Finally, shares in subsidiaries and joint ventures can be (re)-offered to the public at any time — firms that are sold in this manner are called spin-outs. Most industrialized jurisdictions have enacted laws and regulations that detail the steps that prospective owners (public or private) must undertake if they wish to take over a publicly traded corporation. This often entails the would-be buyer(s) making a formal offer for each share of the company to shareholders.


Trading and valuation

The shares of a publicly traded company are often traded on a
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
. The value or "size" of a company is called its
market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company ...
, 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 US$40 has a market capitalization of US$80 million. However, a company's market capitalization should not be confused with the fair market value of the company as a whole since the price per share are influenced by other factors such as the volume of shares traded. Low trading volume can cause artificially low prices for securities, due to investors being apprehensive of investing in a company they perceive as possibly lacking liquidity. For example, if all shareholders were to simultaneously try to sell their shares in the open market, this would immediately create downward pressure on the price for which the share is traded unless there were an equal number of buyers willing to purchase the security at the price the sellers demand. So, sellers would have to either reduce their price or choose not to sell. Thus, the number of trades in a given period of time, commonly referred to as the "volume" is important when determining how well a company's market capitalization reflects true fair market value of the company as a whole. The higher the volume, the more the fair market value of the company is likely to be reflected by its market capitalization. Another example of the impact of volume on the accuracy of market capitalization is when a company has little or no trading activity and the market price is simply the price at which the most recent trade took place, which could be days or weeks ago. This occurs when there are no buyers willing to purchase the securities at the price being offered by the sellers and there are no sellers willing to sell at the price the buyers are willing to pay. While this is rare when the company is traded on a major stock exchange, it is not uncommon when shares are traded
over-the-counter Over-the-counter (OTC) drugs are medicine Medicine is the Art (skill), art, science, and Praxis (process) , practice of caring for a patient and managing the diagnosis, prognosis, Preventive medicine, prevention, therapy, treatment or Palliat ...
(OTC). Since individual buyers and sellers need to incorporate news about the company into their purchasing decisions, a security with an imbalance of buyers or sellers may not feel the full effect of recent news.


See also

*
Forbes Global 2000 The Forbes Global 2000 is an annual ranking of the top 2,000 public companies in the world by ''Forbes ''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family (publishers), Forbes fami ...
*
Government agency A government or state agency, sometimes an appointed commission, is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an Administration ...
*
Non-departmental public body In the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to ...
* plc, public company under UK legislation *
Public bodies A statutory corporation is a corporation created by the state. Their precise nature varies by jurisdiction, thus, they might be ordinary companies/corporations owned by a government with or without other shareholders, or they might be a body witho ...
* Publicly unlisted company *
Regulatory agency A regulatory agency or regulatory body, is a government authority that is responsible for exercising autonomous dominion The word Dominion was used from 1907 to 1948 to refer to one of several self-governing colonies of the British Empire. ...
*
Statutory authority A statutory authority is a body set up by law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced ...
*
Statutory corporation A statutory corporation is a statute created by the government. Their precise nature varies by jurisdiction, thus, they might be ordinary companies/corporations owned by a government with or without other shareholders, or they might be a body wit ...
* Success trap *
UK company law The United Kingdom company law regulates corporations formed under the Companies Act 2006 The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom The Parliament of the United Kingdom is the Parliamentary soverei ...


References

{{DEFAULTSORT:Public Company Types of business entity