What it is:
A public company is a company that is permitted to sell its registered securities to the general public. Also referred to as a "publicly-traded company."
How it works (Example):
A public company is a company with securities (equity and debt) owned and traded by the general public through the public capital markets. Shares of a public company are openly traded and widely distributed. According to the U.S. Securities and Exchange Commission (SEC), any company with more than $10 million in assets and 500 shareholders of record is required to register with the SEC, and is subject to its reporting standards and regulations.
In a public company, the ownership is shared between the shareholders, including the board, management and public shareholders.
Why it Matters:
A public company is able to raise substantial amounts of capital in the public capital markets, trading ownership shares as well as control of the company. At the same time, public companies are subject to higher levels of costly reporting, regulations, and public scrutiny. For example, publicly traded companies must publish annual reports, such as the Form 10-K, filed with the SEC, and disclose detailed information about its finances and business activities, including proprietary information that may help competitors. In addition, changes within the company, such as the capital structure of the company, need to be approved by the shareholders.