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Public company

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A public company is a business organized through shares of stock. These shares are intended to be traded freely on a stock exchange or in over-the-counter markets.

New York Stock Exchange Facade 2015
New York Stock Exchange Facade 2015

While some companies are listed on an exchange to help trading, others remain unlisted public companies. Most public companies operate as private enterprises within the private sector. The term "public" highlights that they trade on public markets and must report information to the public. These companies exist within specific legal systems and have formal designations in their home countries.

Different nations use different names for these business types. In the United States, a public company is usually a corporation. In the United Kingdom, it is known as a public limited company, or PLC. France uses the term SA, while Germany uses AG. These specific designations are important because they sit at the core of international law disputes. These rules affect how industries and trade operate across different borders and legal jurisdictions.

Public companies use a specific mechanism to raise funds, which is known as raising capital. They do this by selling shares of stock in the primary or secondary markets. Before public companies existed, it was very difficult for private businesses to get large amounts of capital. Previously, significant money could only come from a small set of wealthy investors or banks. By selling shares, a company can access money from many different investors. Shareholders can then earn profit through dividends or through capital gains if the stock price rises.

Ownership in these companies is often spread among many different people. In the United States, the Securities and Exchange Commission requires firms to report their major shareholders every year. This includes institutional shareholders, which are firms that own stock in other companies. It also includes company officials and any individuals owning more than 5% of the firm's stock. This transparency helps the government and the public understand who holds influence. In some cases, companies with over 500 shareholders must report under the Securities Exchange Act of 1934.

There are many advantages and disadvantages to being a public company. One benefit is that it allows founders to share risk by selling shares to the public. For example, Facebook was a private company until its initial public offering in 2012. In 2013, founder Mark Zuckerberg owned 29.3% of the company's class A shares. This gave him enough voting power to control the business while raising capital from others. Additionally, giving stock to employees can create a vested interest in the company's financial success.

However, public companies face strict rules and potential weaknesses. Many stock exchanges require companies to have their accounts regularly audited by outside auditors. This process is costly and may reveal useful information to competitors. In the United States, the Sarbanes-Oxley Act imposes even more requirements on these businesses. Another challenge is the principal-agent problem, or the agency problem. This occurs when there is a separation between the people who own the company and the people who control it. Some shareholders may even hold shares maliciously, which can cause founders to lose control.

Companies can also change their status through a process called corporate privatization. This is often called "going private" when a group of private investors buys out the shareholders. This is typically done through a leveraged buyout if investors believe the securities are undervalued. Sometimes, one public company will purchase another. If the compensation is mostly in shares, the deal is considered a merger. A company might also become a subsidiary or a joint venture. In some cases, a firm is sold as a spin-off, where its shares are re-offered to the public.

Finally, it is important to understand how a company's value is measured. The size of a company is called its market capitalization, or "market cap." You calculate this by multiplying the number of shares outstanding by the current price per share. For instance, if a company has two million shares at $40 each, its market cap is $80 million. However, market cap is not the same as the fair market value of the whole company. Factors like investor sentiment and market conditions also influence the share price.

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File:New York Stock Exchange Facade 2015.jpg
New York Stock Exchange Facade 2015.jpg
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