What is a Public Company?
A public company is defined as any company that has issued an Initial Public Offering (IPO) of its shares to the public, and whose shares are traded in one or more of the major stock exchanges.
By contrast, a private company’s shares are 100% privately held, usually by company founders and private investors.
There are many reasons why a private company might choose to go public with an IPO.
Here are some advantages:
- Ability to sell equity and bonds to raise capital for business activities
- Better access to debt markets
- Greater prospects for expansion and profitability
Becoming a public company also carries certain disadvantages, such as:
- Greater scrutiny by the public and financial regulating bodies
- Diminished control for company founders and majority shareholders
- Stringent reporting requirements with organizations like the FTC
Image source: Pixabay
A company does not have to make all of its shares available to the public in order to become a public company.
Issuing an IPO of any size will effectively allow the public to set the value of the company by trading its stock.
Prior to initiating an IPO, the value of a company is not necessarily known to the public or even to the private owners of the company.
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