Lexicon
What is a public company?
What is a public company? It’s a primary, pivotal entity in the business landscape that allows ownership to fluctuate through continuing buying and selling.
When you invest in a public company, you can own, trade, and voice opinions however you feel you’ll get the most return.
When you run a public company, you need to monitor this activity and act in the best interests of those who invest. It’s a lot of responsibility but a core part of the business – signalling maturity and stability.
What is a public company?
It’s a company with shares that can be freely traded on the stock market.
Companies become public through an initial public offering (IPO). This is a widespread process and, in most cases, a natural part of the business growth cycle.
Public companies are subject to stringent regulatory requirements, including regular financial reporting, governance standards, and transparency obligations.
Why are companies public?
Being public opens numerous doors, including access to capital markets, enhanced visibility, and the opportunity for existing stakeholders to realise the value of their investment.
It’s true that this process also subjects the business to stronger market forces, with many more voices from multiple investors vying for their opinions to be heard. This can get noisy and sometimes complicated. However, if it’s navigated correctly, the rewards can be lucrative.
What rules should I know about public companies?
Public companies are always responsible for balancing shareholder interests with long-term strategic goals under the watchful eyes of regulatory bodies and the public.
Boards of public companies – alongside their management colleagues – are the ones who carry out this responsibility.
There’s a lot of work in running a public company, but directors and other corporate leaders must never forget the above rule to guide their decision-making.
Any other rules?
Many will come from regulatory bodies that set governance standards and how public companies can fairly interact with the marketplace.
For example, the Financial Conduct Authority (FCA) regulates public companies in the UK. Each EU member state will have similar bodies as part of its national governance.
Pros and cons of public companies
Pros:
- Increased capital from investors which fuels growth.
- An increased public profile
- The ability to attract and retain top talent
- Limited liability – meaning that in case of financial difficulties, shareholders are only financially liable up to the amount they have invested. The rest of their assets are completely safe.
Cons:
- Varied investors mean more oversight, which means more pressure to perform well.
- Public companies need to meet multiple legal standards and do a lot of reporting to show it.
- Public companies are vulnerable to market fluctuation.
- They are also vulnerable to sudden shocks like activist investor pressure or hostile takeover attempts.
The role of a board in a public company
The board is the linchpin between shareholders and the management team.
It sets the company’s strategic direction, oversees its operations, and ensures that it adheres to legal and ethical standards. In essence, the board is tasked with safeguarding the interests of shareholders while steering the company towards sustainable growth and profitability.
Specific responsibilities include:
- Oversight of company strategy
- Oversight of legal compliance
- Oversight of risk
- Oversight of finance
- Developing and fostering a good culture that will feed both management and the employees working with them.
A public company’s board typically comprises both executive directors – who have a management role too – and non-executive (independent) directors, who are there to give an outside and experienced perspective. Both sets will combine to form various committees.
This mix ensures that the board benefits from in-depth company knowledge while gaining impartial external outlooks.
In summary
A public company has shares continuously traded on a stock exchange, meaning ownership can change over the years, months, or even weeks.
In this type of company, investor opinion is essential, and the board is responsible for listening to it and balancing wishes with the right strategic direction of the business.
It’s a lot of responsibility but hugely rewarding.