Public Company: Meaning, Listing Process, Examples

What is a Public Company?

A public company is a company that has issued securities (such as stocks) to the public and whose shares are traded on a public marketplace. A public company is also known as a publicly traded company. These companies can have their shares traded on a stock exchange or be traded over-the-counter (OTC).

Public companies are subject to regulatory requirements, such as periodic reporting or disclosure of business and financial information to the public. Hence, they are also often referred to as reporting companies.

A public company often undergoes an initial public offering (IPO) to transition from private to public status. During an IPO, the company creates and issues new shares of its stock, which are then sold to the public for the first time. Other than an IPO, sometimes companies also opt for a direct public offering (DPO) or direct listing, where instead of creating new shares, it allows existing, outstanding shares held by insiders and early investors to be traded on a public exchange.

An alternative to an IPO and DPO is a reverse takeover (RTO), also known as a reverse merger or reverse IPO, in which a private company acquires or merges with a publicly traded company. In this process, the private company effectively takes over the publicly traded company, allowing it to go public without the traditional IPO process.

In addition to these three mechanisms – initial public offering (IPO), direct public offering (DPO) or direct listing, reverse takeover or reverse merger – which are quite popular all over the world, there are various other mechanisms that, to some extent, are region-specific. For example, a Special Purpose Acquisition Company (SPAC) in the U.S. and Canada, where a publicly traded company is formed with the sole purpose of acquiring or merging with an existing business to take it public. SPACs are also allowed in some regions of Europe and Asia. A Capital Pool Company (CPC) in Canada also serves the same purpose.

Public companies typically have their shares listed and traded on a stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. Public companies whose shares are not listed on an authorized stock exchange are traded in the over-the-counter (OTC) market.

In the United Kingdom, European Union, and India, a public company is referred to as a public limited company (PLC).

Public Company Definition

A public company, also known as a publicly traded company, is an entity that has issued securities, such as stocks and bonds, to the general public through an initial public offering (IPO) or other alternative methods and is traded on public stock exchanges or OTC markets.

The U.S. Securities and Exchange Commission (SEC) defines a public company as follows:

The term “public company” can be defined in various ways. There are two commonly understood ways in which a company is considered public: first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public.

A public company is also known as a publicly traded company, as it is traded on public markets (stock exchanges or OTC markets). A public company listed on an authorized stock exchange is also known as a publicly listed company.

Generally, when people refer to a “public company,” they often associate it with companies whose stocks are traded on authorized stock exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. However, it’s essential to note that being a public company technically means that the company’s shares are available for trading by the public, and this can occur on various platforms, including authorized stock exchanges and over-the-counter (OTC) markets.

Note: In the context of this article, when we mention “public companies,” we are specifically referring to companies that have publicly listed their shares on a stock exchange, making them available for trading by the general public.

Characteristics of a Public Company

Key characteristics of a public company include:

Issuance of Shares: Public companies issue shares, often in the form of common stock, which represents ownership in the company. Shareholders have certain rights, including voting in corporate matters and the potential to receive dividends. A public company often undergoes an initial public offering (IPO) to transition from private to public status.

Listing on Stock Exchanges: Public companies have their shares listed on a stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. To become publicly listed, a company must meet the listing requirements of the corresponding stock exchange. These requirements typically include financial transparency, adherence to corporate governance standards, and a sufficient number of outstanding shares to ensure market liquidity. Public companies that are not listed are traded in the OTC markets.

Ownership Structure: The ownership of a public company is dispersed among a large number of individual and institutional shareholders. Shareholders have the right to vote on important matters affecting the company at annual meetings.

Financial Disclosure & Transparency: Public companies are subject to stringent regulatory requirements for financial disclosure. They must regularly report financial statements, earnings reports, and other relevant information to regulatory authorities and the public. This transparency provides investors with information to make informed investment decisions.

Access to Capital: Being publicly listed allows the company to raise capital from a wide range of investors. It can issue additional shares through secondary offerings to fund expansion, research and development, acquisitions, or debt reduction.

Market Valuation: The value of a public company is determined by the market and is reflected in its stock price, which can fluctuate daily based on supply and demand. The market capitalization reflects the total value of all outstanding shares.

Liquidity: Publicly listed shares are generally more liquid and can be easily bought or sold on stock exchanges. This liquidity allows investors to enter or exit their positions at prevailing market prices.

Regulatory Oversight: A public company is subject to extensive regulatory oversight to ensure fair and transparent operations. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, enforce securities laws and monitor compliance of public companies.

Public Accountability: Since a portion of the company’s ownership is in the hands of public shareholders, the management and board of directors of a public company have a fiduciary responsibility to act in the best interests of these shareholders.

Corporate Governance: Publicly listed companies often have independent boards of directors, audit committees, and other governance structures to enhance accountability and protect shareholders’ rights.

Publicly listed companies exist in various industries and sectors and can range from regional businesses to multinational corporations. Going public is a strategic decision that allows companies to access the public capital markets and raise funds for growth and expansion. However, it also comes with increased regulatory obligations and public scrutiny.

Public Company vs Private Company

As previously discussed, a public company is an entity whose shares are listed and traded on a recognized stock exchange, available for purchase by the general public. The ownership of the company is distributed among a wide range of shareholders, and these shares are typically more liquid. On the other hand, a private company is a business entity that is privately held, meaning its ownership is usually confined to a small group of individuals or entities.

Unlike public companies, private companies have not gone through a listing process, and as a result, their shares are not traded on a public stock exchange. Instead, ownership is often concentrated among founders, employees, and a select group of investors.

A private company relies on personal savings, loans, or private investments for raising capital. Its shares are less liquid, and there may not be a readily available market for selling shares.

As mentioned earlier, a public company is subject to extensive government regulations and reporting requirements. In contrast, a private company faces fewer regulatory requirements and has more flexibility in its operations and financial reporting. It has fewer disclosure requirements and may operate with a higher degree of privacy and confidentiality.

A public company has a more complex corporate governance structure, with a board of directors, committees, and external oversight. In contrast, a private company tends to have a simpler governance structure with fewer formal governance mechanisms.

Aspect	Public Company	Private Company
Ownership	Owned by a large number of shareholders.	Owned by a smaller group of individuals, founders, or private investors.
Stock Exchange	Shares are publicly traded on a stock exchange.	Shares are not publicly traded on a stock exchange, but some are traded in OTC markets.
Regulation	Subject to extensive government regulations and reporting requirements.	Subject to fewer regulatory requirements with more operational flexibility.
Access to Capital	Can raise capital by issuing and selling shares on stock exchanges.	May have limited options for raising capital, often relying on personal savings or private investments.
Liquidity	Shares are more liquid and can be bought and sold on stock exchanges.	Shares are less liquid, and there may not be a readily available market for selling shares.
Transparency	Must adhere to strict financial reporting and disclosure standards, promoting transparency.	Have fewer disclosure requirements and may operate with a higher degree of privacy.
Corporate Governance	Often have a more complex corporate governance structure with a board of directors, committees, and external oversight.	Tend to have simpler governance structures with fewer formal governance mechanisms.
Shareholder Base	Have a diverse shareholder base that may include institutional investors, retail investors, and individual shareholders.	Have a more concentrated and select group of shareholders, often with personal or strategic ties.
Market Recognition	Subject to increased market recognition, attracting institutional investors, analysts, and media attention.	Not subject to the same level of market scrutiny and may operate with less visibility.
Exit Strategy	Offer founders and early investors an exit strategy through the sale of shares on the open market.	May have fewer exit options, and liquidity events may be less straightforward.
Access to Debt Markets	Often have easier access to debt markets and can diversify their sources of capital.	May have limited access to debt markets and may rely more on equity financing.

Publicly Listed Company vs Publicly Traded Company

A publicly listed company is one that has its shares listed on a public stock exchange. Listing implies that the company has fulfilled the requirements of the exchange and has agreed to abide by its rules and regulations. Being publicly listed allows the company’s shares to be bought and sold on the exchange.

A publicly traded company is one whose shares are available for trading on the open market. Being publicly traded means its shares can be freely bought and sold by the public, but it may not necessarily be listed on a stock exchange. It can be done either through a stock exchange or an OTC market.

In other words, publicly listed companies are a subset of publicly traded companies. It means a publicly traded company can either be a publicly listed company or an unlisted public company. Unlisted public companies are traded in over-the-counter (OTC) markets or other decentralized markets.

Aspect	Publicly Listed Company	Publicly Traded Company
Stock Exchange Listing	Listed on a public stock exchange, such as NYSE or NASDAQ.	May or may not be listed on a stock exchange.
Buying and Selling	Company’s shares are bought and sold on the stock exchange.	Shares may trade on either stock exchanges, over-the-counter (OTC) markets, or alternative platforms.
Regulatory Requirements	Subject to stringent regulatory requirements, including financial reporting, disclosure, and compliance with securities laws and exchange rules.	Publicly traded companies that are not listed are subject to regulatory requirements but often with less stringency.
Public Ownership	Shares are publicly owned and traded by a diverse range of individual and institutional investors.	Shares are publicly owned and can be bought and sold by the public, though the range of investors may vary depending on the company.
Liquidity	Shares are typically more liquid because they trade on established stock exchanges with active markets.	Publicly traded companies that are not listed usually have lower liquidity.
Market Recognition	Generally, subject to higher market recognition, attracting institutional investors, analysts, and media attention.	Unless listed, they may not receive the same level of market scrutiny and may operate with less visibility.

Conversion of Private Company into Public Company

Several mechanisms exist for transforming a private company into a public company. The most common ones are:

1. Traditional IPO (Initial Public Offering)

An Initial Public Offering (IPO) is the most traditional and widely known method for a private company to go public. In an IPO, a company raises capital by issuing new shares to investors in the public market.

Investment banks, acting as underwriters, play a key role in determining the offering price and distributing shares to institutional and retail investors. The company collaborates with underwriters to prepare a prospectus, which is then filed with regulatory authorities. The company goes on a roadshow to attract investors, and once the IPO is complete, its shares are listed on a stock exchange.

We will explain the process involved in an IPO in more detail below.

2. Direct Public Offering (Direct Listing)

A Direct Public Offering (DPO), also known as a Direct Listing, is a method for a private company to go public and make its shares available for trading on a stock exchange without using traditional underwriters.

In a Direct Public Offering, the company lists its existing shares (held by insiders, employees, and early investors) on a stock exchange without issuing new shares or raising capital. Unlike underwriters setting the price in an IPO, the price of shares in a DPO is determined by the market through the buying and selling activities of investors once the shares start trading.

Companies undergoing a direct listing are subject to the same disclosure requirements as in an IPO. The company is required to file a registration statement with the relevant securities regulator (e.g., the Securities and Exchange Commission in the U.S.), providing detailed information about its business and the securities being offered. The company is also required to fulfill the listing criteria of the stock exchange in which it is going to be listed.

Compared to an IPO, direct listings can be a quicker process as they bypass the underwriting and creation of new shares. They are also cost-effective when compared to an IPO, where underwriting fees, legal expenses, and other associated costs are a major factor.

3. Reverse Takeover (RTO) or Reverse Merger

A reverse takeover (RTO), also known as a reverse merger or reverse IPO, is a process in which a private company acquires or merges with an existing publicly traded company. The existing public company is often an entity that has no active business operations. The private company’s management gains control of the public company, allowing it to go public.

Reverse takeovers are sometimes chosen by private companies as an alternative to the traditional IPO process because they can be faster and less expensive. In this process, the private company first identifies a publicly traded company, which is often a shell company with minimal or no operations.

The companies negotiate and enter into a merger or acquisition agreement, outlining the terms and conditions of the transaction. The structure of the deal may involve a stock swap, cash payment, or a combination of both. Shareholders of both the private and public companies must approve the transaction. Through the share exchange, the private company’s management gains control of the board and, consequently, control of the public company.

The combined entity, now effectively the private company under a new name, undergoes any necessary changes to meet the listing requirements of the stock exchange on which the shell company was previously listed. Once the combined entity complies with listing requirements, its shares are publicly traded on the stock exchange.

However, the quality of the publicly traded shell company is an important factor to consider in the process. If the shell company has a questionable history or financial standing, it can negatively impact the perception of the newly merged entity.

4. Regional Mechanisms (SPAC & CPC)

In addition to the above three, various other mechanisms exist in different regions, such as a Capital Pool Company (CPC) in Canada and a Special Purpose Acquisition Company (SPAC) in the U.S., Canada, and parts of Europe and Asia.

a) Special Purpose Acquisition Company (SPAC)

A Special Purpose Acquisition Company (SPAC) is a publicly traded shell company formed with the sole purpose of acquiring or merging with an existing private company to take it public. SPACs are also known as blank-check companies. A group of sponsors, often experienced investors or business executives, forms a SPAC with the intent of raising capital through an IPO.

The SPAC goes public through an IPO, and its shares are traded on a stock exchange. At the time of the IPO, the SPAC does not have a specific business or company it plans to acquire. Investors buy shares in the SPAC based on their confidence in the management team’s ability to identify a suitable target. The funds raised in the IPO are placed in an interest-bearing trust account.

After the IPO, the SPAC’s management has a limited timeframe (usually two years) to identify and acquire a private company. If they fail to do so within the specified period, the SPAC must return the funds to its investors. Once a target company is identified, the SPAC enters into negotiations and completes the acquisition or merger. This process results in the target company becoming a publicly traded entity.

When a private company merges with a publicly traded SPAC, it allows the private company to go public without the traditional IPO process. This process, known as a de-SPAC merger, facilitates the transition of a private business into a publicly traded entity.

b) Capital Pool Company (CPC)

A Capital Pool Company (CPC) is a specific regulatory program in Canada, available on the TSX Venture Exchange. Similar to an SPAC, a CPC is a shell company created for the specific purpose of identifying and merging with an operating business to take it public.

The Capital Pool Company is initially a shell company with no commercial operations. It undergoes an initial public offering (IPO) to raise capital and lists its shares on the TSXV. Following the IPO, the CPC needs to identify and acquire an operating business. The acquisition process is known as a Qualifying Transaction (QT).

Upon successfully completing the QT, the acquired business becomes the primary operating entity, and the CPC is renamed to reflect the new business. Shareholders of the CPC receive shares in the acquired company, and the entity transitions from a shell to an operational business listed on the TSXV.

The SPAC mechanism and the CPC program share many similarities with the reverse takeover (RTO) or reverse merger. However, the major factor that differentiates them from the reverse merger is the intention behind the formation of both SPAC and CPC companies.

In a reverse merger, the private company typically merges with a dormant or shell public company that is already listed on a stock exchange but has limited or no active business operations. In some cases, the public company may have had historical business operations that were wound up due to unprofitability or other reasons, but it remains listed on the stock exchange. In other cases, there may be some ongoing operations, but they might not be substantial. In rare cases, such companies may also be an operating entity with operational business, but the financial clout of the private entity is big enough to acquire them.

On the other hand, both SPAC and CPC involve publicly traded entities that are ‘specifically created’ for the purpose of acquiring or merging with an existing private company. Both SPAC and CPC go public without having any operations or business at the time of their IPO.

Why do Companies go Public?

Companies decide to go public for various reasons, and the decision is often influenced by a combination of financial, strategic, and operational factors. Listing on a stock exchange essentially means going public.

One of the primary reasons companies go public is to raise capital. Going public allows a company to raise capital by issuing new shares to the public through an initial public offering (IPO). The funds generated can be used for various purposes, such as funding expansion plans, research and development, debt reduction, or working capital.

In addition, being a publicly listed company increases visibility and awareness among customers, suppliers, and the general public. It can enhance the company’s prestige and credibility, potentially attracting partnerships and collaborations.

Going public can also provide an exit strategy for early investors or venture capitalists by allowing them to sell their shares to the public. This enables them to realize returns on their investments.

Furthermore, publicly listed companies can use their shares as a currency while acquiring other companies. In the course of a merger or acquisition, the acquiring company has the flexibility to incorporate its shares into the deal structure.

Listing Process (IPO Process)

1. Preparation

The company ensures that its financial statements are audited and comply with applicable accounting standards prevalent in the country, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). It also assesses its readiness for public scrutiny, including governance structures and internal controls.

2. Engaging Advisors

Underwriters: The company selects underwriters (investment banks) to manage the IPO process.

Legal Advisors: The company may also hire legal counsel experienced in securities regulations to guide them through the legal aspects of listing.

3. Due Diligence

Due diligence involves a thorough examination of the company’s financial health, operations, legal status, and potential risks. Both the company and underwriters conduct due diligence to ensure the accuracy and completeness of information in the IPO prospectus.

Draft Underwriting: The underwriting agreement is a legally binding contract between the issuing company and the underwriters responsible for facilitating the IPO. The final version of the underwriting agreement is executed after the roadshow.

4. IPO Registration

Preliminary IPO Prospectus: The company prepares a preliminary prospectus, also known as a red herring prospectus, detailing the company’s business model, financials, risk factors, and the proposed use of proceeds.

Registration Statement Filing: The company files a registration statement with the relevant securities regulator (e.g., Securities and Exchange Commission in the U.S., Financial Conduct Authority in the U.K.), providing detailed information about its business and the securities being offered.

Waiting Period: Undergo a waiting period during which the regulatory body reviews the filing to ensure compliance with securities laws.

Exchange Selection: Simultaneously, the company selects the stock exchange (e.g., NYSE or NASDAQ in the U.S., Toronto Stock Exchange, or Canadian Securities Exchange in Canada) it wishes to be listed on and applies to the selected exchange separately.

5. Roadshow

Company executives, along with underwriters, conduct a roadshow to present the investment opportunity to potential investors. The roadshow is a series of presentations and meetings with institutional investors to generate interest in the IPO. During this process, they assess investor interest, which will help them determine the IPO pricing.

Book-building: The book-building process occurs during and after the roadshow, where underwriters solicit indications of interest from institutional investors at different price levels. This helps determine the demand for the shares and the optimal IPO price.

6. IPO Pricing

Based on the feedback from investors during the roadshow and the book-building process, the final IPO price is determined. The goal is to strike a balance between maximizing proceeds for the company and ensuring a successful market debut.

7. Final Approval

Amendments and Revisions: The regulatory authority reviews the registration statement, providing comments and requesting clarifications or revisions. Based on the feedback from the regulatory authority and any changes in the business or market conditions, the company may need to update and revise the red herring prospectus.

Regulatory Authority Clearance: Once the regulatory authority (e.g., SEC in the U.S., FCA in the U.K.) is satisfied with the disclosures and compliance, it issues a clearance letter, indicating that the registration statement is effective. This allows the company to move forward with the IPO.

Final IPO Prospectus: The Final IPO Prospectus reflects all the necessary disclosures and amendments made during the review. It is a comprehensive document detailing the company’s business model, financials, risk factors, the offering price, the number of shares offered, and the size of the net offering. It serves as a key informational tool for potential investors.

Stock Exchange Approval: The stock exchange in which the company has applied for listing approves the listing application.

8. Finalization & IPO Allocation

Finalization of Underwriting Agreement: The underwriting agreement outlines the terms and conditions of the offering, including the underwriters’ commitment to purchase and resell shares.

IPO Allocation: The underwriters allocate shares to institutional investors, taking into account factors such as demand, investment size, and long-term commitment.

9. Listing & Trading Debut

Stock Exchange Listing: The company’s shares are officially listed on the chosen stock exchange, allowing them to be traded by the public. The stock exchange assigns a ticker symbol to the company’s shares.

First Trading Day: Begin trading on the stock exchange. Investors use the ticker symbol to place orders and track the performance of the company’s shares in the stock market.

10. Post- Listing Compliance

Ongoing Reporting: After listing, the company must adhere to ongoing reporting requirements, including quarterly and annual financial statements.

Corporate Governance: Compliance with corporate governance standards and timely disclosure of material information are essential for maintaining a good relationship with investors.

Benefits of Listing

Listing a company on a stock exchange offers several benefits for both the company itself and its stakeholders.

Access to Capital: A public company can raise capital by issuing and selling shares to a wide pool of investors. This access to capital can be used for various purposes, such as funding growth initiatives, research and development, debt reduction, and acquisitions.

Liquidity for Shareholders: Publicly traded shares are generally more liquid than private equity. Shareholders can buy or sell their holdings on the open market, providing an exit strategy and potentially realizing gains from their investments.

Enhanced Brand Visibility: Being listed on a stock exchange can enhance a company’s reputation and credibility. It demonstrates a commitment to transparency and regulatory compliance, which can attract customers, partners, and suppliers.

Employee Incentives: Publicly traded companies often use stock options and equity awards to attract and retain top talent. Employees can benefit from the potential appreciation in share value.

Valuation and Transparency: A public company is subject to regular financial reporting and disclosure requirements, increasing transparency. This transparency can lead to fairer valuations and reduced information asymmetry.

Mergers and Acquisitions (M&A) Currency: Publicly traded shares can be used as a currency in mergers and acquisitions, making it easier to negotiate and structure deals with other companies.

Exit Strategy: Listing on a stock exchange provides an exit strategy for early investors and founders. They can sell their shares to realize returns on their investments.

Corporate Governance: A public company is typically held to higher corporate governance standards. This can lead to improved decision-making processes, accountability, and oversight.

Economies of Scale: A public company often has access to lower-cost financing options and can pursue larger-scale operations, enabling cost efficiencies and growth opportunities.

Market Recognition: Being listed can lead to increased visibility among institutional investors, analysts, and the financial media. This recognition can attract a broader investor base.

Access to Debt Markets: Publicly listed companies often have an easier time accessing debt markets, enabling them to diversify their sources of capital.

Enhanced Trust: Publicly traded companies are subject to regulatory oversight and periodic audits. This can enhance investor trust and confidence in the company’s financial reporting.

While there are numerous benefits to being a publicly listed company, there are also costs and regulatory requirements associated with maintaining a listing. Compliance with reporting standards, disclosure obligations, and investor relations demands time and resources.