By definition a public company is a corporation or organization which offers its stock or bonds, otherwise known as securities to the general public or open market mostly through stock exchange. This happens when the company’s shareholders decide to offer their shares into the open market with a view to raise money for the expansion or re-organization of the company. This should provide a simple answer to the question ‘what is a public company’.
How to Start a Public Company
It is important to consider the costs of going public before a private company decides to become a public company and how to start a public company too. When starting a public company, you will need to know how to make it go public; this is mostly done with the help of a recognized bank, which will play the role of the sponsor for the Initial public offering or IPO which essentially means, the amount of shares offered to the market and the price per share. The banks will co-ordinate work with the private company as an assurance to the public, that the company can meet financial requirements.
Why Companies Issue Stock
Now you may ask yourself why companies issue stock when going public, the simple answer to this is that they would otherwise remain private. A company becomes public in nature when it is able to incorporate members of the public into its own shareholding capacities where they can be said to own part of the company. That should essentially answer the question, what is a public company. Which simply put would mean a company not owned by individuals or a person but by members of the public. They do not necessarily have to have the majority shares in the company, but neither can one man own the majority shares in the company.
What is a Holding Company?
A holding company is a company that has the majority of the shares of another company. A holding company may choose to go public, in which case it has to make its intentions known by releasing its shares into the open market, and every other process remains the same as that of private companies.
Learn more about what is a holding company here.
Why Companies Go Public
One may wonder, why do companies issue stock and go public, is it not a risky process in itself, or are there any advantages for a private company to go public. The answer is yes. There are various advantages to going public some of these include, one, they are able to raise up a huge amount of capital that will be used in the operational costs and expansion of the company, and two, they get publicity, where before the company might not have been known, the process of going public will publicize it. The disadvantage and a huge risk is that the stock given out into the open market is subject to market forces and fluctuations but more often than not, that is a risk worth taking.
A public company can still go back into its original private state too if the company owners can raise the fund to buy back the shares that have been issued in the market previously.