What Is A Publicly Traded Company
Simply put, a publicly traded company is a company that you can buy shares of on the open market. This company issues something called stocks, which could be traded in the stock exchange or possibly in an over the counter marked. These stocks are shares of ownership in the company. One unit of stock is called a share. The people or institutions that own these stocks are called shareholders. They are the owners of the company. How much of a company a shareholder owns is proportional to how many shares that shareholder holds. For example, if you own ten shares of a company that has one thousand outstanding shares, then you own one percent of that company.
If you own enough shares of a publicly traded company, you may get to help that company make decisions regarding business. You might do this at an annual shareholders meeting. If you owned enough shares of a company to influence business practices, you may also get to appoint a board member. A board member is someone you trust to help make decisions for the company on your behalf.
There are reasons both for and against a company going public. If a company is traded publicly, it will have more access to money. The company could raise financing by issuing more stock. Publicly traded companies are also subjected to more regulation, though. All publicly traded companies must file reports on their earnings, called 10-K reports, to an organization called the Securities Exchange Commission, or SEC for short. Publicly traded companies may also be subjected to corporate taxes, which can be higher than business taxes.
Business leaders may also be reluctant to go public with a business if they are concerned about the motives of major shareholders. Because major shareholders may be able to influence the direction a business takes, the needs and desires of the shareholders can have serious consequences for businesses. For example, some shareholders are interested in making money as quickly as possible. They might attempt to influence the company to make decisions that would raise the company's value in the short term so that the shareholders could dump the stock and take a profit. Sometimes, behavior like this can be devastating to a company.
If a company does want to go public, then they need to have an initial public offering, often referred to by just the letters IPO. For an IPO, the business must obtain the help of an underwriting firm to figure out whether to issue common or preferred securities and how much to price those securities for. Usually, the business will retain the services of several underwriters. These underwriters are normally investment banks. They will guarantee a price for a set number of shares for the business. The underwriter does this by buying all of the shares and then reselling them to the public in the IPO. Sometimes, the underwriter agrees to commit to selling as much of the stock as possible but never actually buys any of the stock. It is the underwriter's job to assess the risks of buying shares of a company.
