A public company is a company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in over-the-counter markets. Although a small percentage of shares may be initially floated to the public, becoming a public company allows the market to determine the value of the entire company through daily trading.
Public companies are publicly traded within the open market with shares being purchased by a variety of investors. Most public companies originated from private companies that, after meeting all regulatory requirements, opted to become public in an effort to raise large amounts of capital. Examples of public companies include Google Inc., F5 Networks Inc., Chevron Corporation, and Procter & Gamble Co.
Public companies have certain inherent advantages over private companies, including the ability to sell future equity stakes and increase access to debt markets. Once a company goes public, additional revenue can be generated through additional offerings, which involve the creation and sale of new shares within the marketplace. However, with these advantages comes increased regulatory scrutiny and less control for majority owners and company founders. Public companies must meet mandatory reporting standards as regulated through government entities. Additionally, applicable shareholders are entitled to documents and notifications regarding the activities transpiring within the business upon which they hold an interest.
Once a company is public, it must answer to its shareholders. For example, certain corporate structure changes and amendments must be presented for shareholder votes. Shareholders can vote with their dollars by bidding up the company to a premium valuation or selling it to a level below its intrinsic value.
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