# Publicly Traded Company: Definition, How It Works, and Examples

> **Definition**
>
> A public company is a corporation whose ownership shares can be bought and sold on stock exchanges. 

## What Is a Publicly Traded Company?

A publicly traded company sells shares to the public after going through an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp). Shares are sold on stock exchanges or over-the-counter (OTC), giving shareholders a stake in the company's profits and assets. According to the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp), public companies have public reporting requirements. As such, they must regularly disclose their financial information and securities trading on public exchanges.  

### Key Takeaways

*   A publicly traded company is a corporation whose shares are traded to the public on exchanges or over the counter.
*   Ownership of a public company is distributed among general public shareholders through the free trade of shares of stock on stock exchanges or over-the-counter markets.
*   A public company is required to disclose its financial and business information regularly to the public.
*   It must also report its securities trading on public exchanges.

![Public Company: A company whose ownership is divided into shares that can be traded by the general public.](https://www.investopedia.com/thmb/fd6CgYaY2p-frngpDOLbP9WKoos=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/publiccompany.asp-final-912a929b908e4687b70d20c8677fb4f8.jpg)

*— Investopedia / Jake Shi*

## Understanding a Publicly Traded Company

Most public companies begin as private companies that were owned by founders, management, or private investors. Private companies don't have any public reporting requirements. A company is required to conform to public reporting requirements when it meets any of certain criteria:

*   They sell securities in an IPO.
*   Their investor base reaches a certain size.
*   They voluntarily register with the SEC.

An IPO is the process by which a private company begins offering shares to the public in a new stock issuance. A company is considered private before completing an IPO. Issuing shares to the public through an IPO is very important for a company because it provides it with a source of [capital](https://www.investopedia.com/terms/c/capital.asp) to fund growth.

> **Fast Fact**
>
> Examples of public companies include Chevron Corporation, McDonald's, and The Procter & Gamble Company.

There are requirements to complete an IPO. Regulations are set forth by stock exchange regulators where it hopes to trade and by the SEC. A company usually hires an investment bank to market its IPO, determine the price of its shares, and set the date of its stock issuance. Private investors are offered share premiums when the company undergoes an IPO to reward them for their investment.

U.S. companies with at least $10 million in assets and either 2,000 shareholders or those with 500 or more unaccredited investors must register with the SEC as a public company and adhere to its reporting standards and regulations.

> **Fast Fact**
>
> Reporting requirements for public companies were established by the Sarbanes-Oxley Act, a set of reforms intended to prevent fraudulent reporting. Qualified shareholders are also entitled to specific documents and notifications about the corporation's business activities.

## Special Considerations

A public company may choose to [revert to a private company](https://www.investopedia.com/articles/stocks/08/public-companies-privatize-go-private.asp) for many reasons. It may decide that it's too cumbersome to adhere to and comply with the costly regulatory requirements or it might want to free up its resources to devote to [research and development (R&D)](https://www.investopedia.com/terms/r/randd.asp), capital expenditures, and funding pension plans for its employees.

A take-private transaction is necessary when a company transitions to private. A private equity firm or a [consortium](https://www.investopedia.com/terms/c/consortium.asp) of firms either purchases or acquires the outstanding stock. This may require the private equity firm to secure additional financing from an investment bank or another type of lender that can provide enough loans to help finance the deal.

Once this is complete, the company is delisted and returns to private operations when the purchase of all the outstanding shares is complete.  

## Advantages and Disadvantages of Publicly Traded Companies

### Advantages

Public companies can access financial markets and can raise money for expansion and other projects. This can be done by selling stocks or [corporate bonds](https://www.investopedia.com/terms/c/corporatebond.asp). An investor who purchases a corporate bond is effectively lending money to the corporation in return for a series of interest payments. These bonds may also actively trade on the secondary market in some cases.

Going public also allows companies to boost their corporate profile, products and services, and business strategy. Increasing public awareness can also help the company gain [market share](https://www.investopedia.com/terms/m/marketshare.asp).

> **Fast Fact**
>
> There's some clout attached to being a publicly traded company and having your stocks trade on a major market like the New York Stock Exchange (NYSE) because a company must have achieved a certain level of operational and financial size and success to transition to being publicly traded.

### Disadvantages

The ability to access the public capital markets also comes with increased regulatory scrutiny, administrative and financial reporting obligations, and [corporate governance](https://www.investopedia.com/terms/c/corporategovernance.asp) bylaws. This results in less control for the majority owners and founders of the corporation. There are also substantial costs to conducting an IPO, as well as the ongoing legal, accounting, and marketing costs of maintaining a public company.

Public companies must meet mandatory reporting standards. Companies must disclose financial statements along with other public filings. This includes [Form 10-K](https://www.investopedia.com/terms/1/10-k.asp), which gives a comprehensive summary of a company's financial performance. Other forms include quarterly financial 10-Q reports and [8-K](https://www.investopedia.com/terms/1/8-k.asp) when certain events occur. These events include the election of new directors or the completion of an acquisition.

A public company must answer to its shareholders. Shareholders elect a board of directors that oversees the company's operations on their behalf. Certain activities such as [mergers and acquisitions (M&A)](https://www.investopedia.com/terms/m/mergersandacquisitions.asp) and some corporate structure changes and amendments must be brought up for shareholder approval. This effectively means that shareholders can control many of the company's decisions.

Pros

*   Access to capital
    
*   Boost company profile
    

Cons

*   Regulatory scrutiny
    
*   Reporting requirements
    
*   Must answer to shareholders
    

## Is an Exchange-Traded Fund (ETF) a Publicly Traded Company?

An [exchange-traded fund](https://www.investopedia.com/terms/e/etf.asp) is similar to a publicly traded company in that its shares are traded on stock exchanges and the market determines their value. You can buy ETF shares just as you would buy shares of a publicly traded company through a brokerage account or a broker.

## What Is a Reporting Company?

Reporting company is essentially another name for a public company. These companies must meet the same reporting requirements with the SEC as public companies. A reporting company does not necessarily have to undergo an IPO, however. It can register its class of securities with the SEC instead.

## What Is a Beneficial Owner?

A beneficial owner is someone who controls or owns 25% or more of a reporting or public company and who has significant control over the company. Companies must report their beneficial owners and provide certain information about them.

## The Bottom Line

You probably own stock in a public company if you've invested in a mutual fund or a pension plan because many plans and funds make use of this type of investment. You can invest directly in such a company as well if you choose to do so. In either case, you and the other shareholders have an ownership stake in the company proportional to the amount of stock you've purchased.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Public Companies](https://www.investor.gov/introduction-investing/investing-basics/how-stock-markets-work/public-companies)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Exchange Act Reporting and Registration](https://www.sec.gov/smallbusiness/goingpublic/exchangeactreporting)."
>     
> 3.  Cornell University, Legal Information Institute. "[Sarbanes-Oxley Act](https://www.law.cornell.edu/wex/sarbanes-oxley_act)."
>     
> 4.  U.S. Securities and Exchange Commission. "[Investor Bulletin: Exchange-Traded Funds (ETFs)](https://www.sec.gov/investor/alerts/etfs.pdf)."
>     
> 5.  U.S. Securities and Exchange Commission. "[What Does It Mean to Be a Public Company?](https://www.sec.gov/education/capitalraising/building-blocks/what-does-it-mean-be-a-public-company )"
>     
> 6.  Financial Crimes Enforcement Network. "[Beneficial Ownership Information Reporting Rule Fact Sheet](https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet)."