What is a Publicly Traded Company?

All companies that have stock listed on any exchange are considered publicly traded companies. The primary shareholders in a public company are outside investors who purchase the stock, as opposed to those who work within the firm. The decision to take a firm public largely depends on its anticipated future needs.

Publicly Traded Company

A publicly traded company is one that has issued company shares to be traded on a public stock exchange. This is done in an effort to raise capital for the firm; the price of the stock issued reflects the total value of the company.

Public Versus Private

Public companies must be accountable to shareholders for all happenings within the company. Important matters are voted on by the shareholders. For example, the composition of the Board of Directors is determined by shareholder vote. In a private company, appointments to the board are made from within the firm.

Pros and Cons

Some of the pros of being a public company are easier access to extremely large amounts of capital, immediately and in the future, as well as the ability to issue an increased variety of debt securities (i.e., bonds). The cons are that the company has many more regulatory constraints imposed by the Securities and Exchange Commission (SEC), and the company's initial owners and founders lose much of the power they once held over the business.

IPO

For a private company to go public, an Initial Public Offering (IPO) must be issued. A private company will work for several years to refine business strategies and goals of the firm; after the necessary leg work is completed, the company can issues shares to the trading public.

Privatization

The opposite of a company going public is privatization. Privatization occurs when a public company repurchases all outstanding shares of its business. Privatization can also take place if one outside investor purchases all of the company's shares.