Publicly Traded Companies

Updated on April 15, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Are Publicly Traded Companies?

Publicly Traded Companies, also known as publicly listed companies, refer to all those companies which have their shares listed on any of the stock exchanges which allow the trading of their shares to the common public, i.e., anyone can sell or purchase the shares of these companies from the open market.

What Are Publicly Traded Companies

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It is a company that has listed itself on at least one public stock exchange and has issued securities for ownership in the company to public investors. The company makes itself public through a process known as Initial Public OfferingInitial Public OfferingAn initial public offering (IPO) occurs when a private company makes its shares available to the general public for the first time. IPO is a means of raising capital for companies by allowing them to trade their shares on the stock exchange.read more, which must be approved by any country’s Securities and Exchange Regulator.

Key Takeaways

  • Publicly Traded Companies are listed on a stock market that permits the general public to trade their shares.
  • These companies are limited by shares and are represented by suffixing ‘Ltd.’. They invite the general public to subscribe to the company’s shares and become shareholders.
  • A private company can pay the shareholders dividends if they choose to. The company must also involve the shareholders in voting for several major decisions.
  • Public Companies can invite the general public to buy the company’s shares through an Initial Public Offer (IPO). These shares are subsequently traded among investors on the stock exchanges.

How Do Publicly Traded Companies Work?

A publicly-traded company is a company that has listed itself on at least one public stock exchange and has issued securities for ownership in the organization to public investors. Being a public company has advantages such as access to huge capital and increased liquidity. At the same time, there are certain disadvantages, such as many regulatory scrutinies and adhering to reporting requirements.

A certain percentage of the shares are issued to the public, but generally, the controlling stake resides with the majority shareholder. Going public means the secondary marketSecondary MarketA secondary market is a platform where investors can easily buy or sell securities once issued by the original issuer, be it a bank, corporation, or government entity. Also referred to as an aftermarket, it allows investors to trade securities freely without interference from those who issue them.read more can determine the entire company’s value through trading between investors.

Private organizations go public through a method called Initial Public Offering. They take the help of investment bankers to prepare a prospectus and, if possible, underwrite the issue. The investment bankers also do their due diligence in finding out the best offer priceOffer PriceOffering Price is the price that is decided by an investment banking underwriter when a company plans to go public list shares in the stock exchange for raising capital. This price is based on the future earning potential of the company, however, the price shouldn’t be too high then the shares might not be sold in full and if it is too low then the potential to raise more capital is lost.read more

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How Do They Raise Capital?

Let us understand the process of raising capital by going public, undertaken by all companies from the small to popular publicly traded companies:

Example

Shares of such companies are traded in the open market between retail investors and institutional investorsInstitutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples.read more. Generally, due to the requirement of large amounts of capital, privately held companies opt to become public after fulfilling all regulatory requirements. Examples of popular publicly traded companies are Procter and Gamble, Google, Apple, Tesla, etc.

Advantages & Disadvantages

Top publicly traded companies choose to offer a share of ownership of their business to the public for raising capital or diversification. However, this process can have its own share of upsides and downsides. Let us discuss them through the points below:

Advantages

 Disadvantages

Frequently Asked Questions (FAQs)

Can the shares of Publicly Traded Companies be traded?

Investors can subscribe to a public company’s initial public offer (IPO) and become the company’s initial shareholders. Subsequently, these shares can be traded in the stock exchanges, and the market forces of demand and supply, among other forces, determine their price.

How many directors and shareholders can a Publicly Traded Company have?

A minimum of one shareholder is required. However, there is no cap on the quantity. For non-public companies, the minimum number of directors is often 1, although there is no limit. In several provinces and territories, as well as the federal government, public businesses may be obliged to have a minimum number of directors (i.e., more than one).

What are the requirements for a company to go Public?

Revenue for the business must be steady and dependable. When a corporation fails to anticipate its earnings or misses them, the public markets do not like it. Therefore, the company must be established enough to accurately forecast the upcoming quarters and the following year’s anticipated earnings.

This has been a Guide to what are Publicly Traded Companies. We explain the example to show how they work and raise capital with advantages & disadvantages. You may learn more about our articles below on accounting –

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