What is a public company?

What is a public company? It’s a pivotal entity in the global economy and a crucial concept in corporate governance training.

It’s characterised by its ability to generate operating capital through public financing.

A public company, also known as a publicly traded company, is a corporation whose ownership is distributed amongst shareholders within the general public.

In public companies, ownership is split among any and every shareholder who has bought a stake in the business. In private companies, ownership rests with very few people – only those who invest, and this may be as little as one. 

Public companies’ decision-making power lies with all shareholders as a collective, democratic body. In private companies, decision-making power lies with the owner(s).

Public companies are governed by a board of directors elected by the shareholders. The board oversees the company’s strategy and direction, working closely with the executive team in the process. 

Public companies must adhere to strict regulations and standards, which include regular financial reporting and disclosure to national regulators (such as the SEC in the United States and the FRC in the United Kingdom). This governance structure aims to protect the interests of shareholders and ensure transparency and accountability in the company’s operations.

Public companies have several advantages:

1. Access to capital: Public companies can raise significant capital from the stock market. 
2. Ability to expand rapidly: The capital raised on the stock market is often much more significant than anything a private company could raise. This enables the company to fund expansion, research and development, or other capital-intensive projects.
3. Visibility and prestige: Being listed on a stock exchange enhances a company’s visibility and can contribute to its prestige, potentially attracting more business opportunities.

1. Regulatory requirements: Public companies face significant regulatory scrutiny and must disclose financial, operational, and managerial information much more thoroughly and frequently than private companies. Boards and executives can often get frustrated by this. 
2. Market pressure: Public companies are often pressured to meet quarterly earnings estimates. Sometimes, this means sacrificing long-term sustainability to please shareholders’ short-term interests.
3. Vulnerability to market fluctuations: Being accessible on a stock market means being tied to the fortunes of that stock market. Share prices can be volatile and significantly impact the company based on sudden trends, investor sentiment, and external economic factors.

The board of directors plays a crucial role in overseeing a public company’s strategic direction and governance. They are responsible for making significant decisions, including corporate policies, executive compensation, and resource allocation. 

Traditionally, and still, the board protects the interests of the shareholders and ensures the company’s management acts in their best interests. However, their roles have also expanded to a more rounded approach to respecting other groups of stakeholders as part of a sustainable business model.

A public company operates within a complex framework of opportunities and challenges. 

Shareholders are free to buy and sell their part-ownership on the stock market, but while they have any stake, the board of directors is responsible for collectively ensuring that their investments are well spent.