There could be many reasons why a company would go public. One such reason is that it wants to create an opportunity for all the stakeholders, and insiders so they can sell their equity holdings. The public offering of the company at the initial stage of its shares gets converted into the private equity holdings of the investors and insiders of the business into shares that are publicly traded. The investors and insiders can then choose to sell days shares into the open market. A company can also become publicly traded by merging with all being acquired by a SPAC, or a special purpose acquisition company. It is a shell business infrastructure that has been established for the purpose of taking a public company that is doing well.
How to a Company get Public?
There are a couple of steps that need to be followed by a company to go public. They are as follows.
- The first thing the company needs to do is to select Underwriters, like investment banks.
- Handling different types of procedures, files and formalities are some of the most important aspects that they need to take care of.
- Determining the valuation of the company and its share price is one of the most crucial areas that need to be looked into.
- The next step is to offer the shares to the initial investors to commence trading.
- The next final step is the process of transitioning into being a public company that would be listed on the stock exchange so that any investor can buy at market price.
Few characteristics of a public company.
For a public company, there are certain aspects that need to be maintained. In the following section, you’ll be offered a brief insight into some of them.
- Ownership of the stockholders: While most private companies are owned by individuals or at times a single individual, in the case of public companies, they have multiple ownership, which belongs to the stockholders. These owners of the stockholders are allowed to buy and sell a security for the purpose of making money.
- Board of directors: It is a board of directors that represents individual stockholders. The Board of Directors hires experts who have the skills and knowledge to carry out the day-to-day operation of the company and make it operate in a smooth and efficient manner.
- Corporate leadership: In the case of most public companies, they are managed by a CEO or a chief executive officer. A CEO is a person, who is responsible for leading a team of executives, managers, and VP.
- Financial information: As per the regulatory guidelines that are established by the Securities Exchange Act of 1934, public companies are supposed to disclose their financial reports publicly. This enables the investors to make a proper assessment of the valuation of the company.
These are some of the mandatory characteristics that a public company needs to possess. As the name suggests, the ownership of a public company is not restricted to a few individuals. By buying shares, even the common public can get a part of that ownership. It needs to be mentioned in this regard that though most of the shares of a public company are sold and bought in public markets, this does not essentially mean that all the individual shareholders have control over the company. The shareholders have the right to vote and select the Board of Directors, who in turn would hire experts to carry out day-to-day operations. It is the board members who make the decision on the administrative and operational aspects of a company, supported by the managers, executives, and people at other positions of authority.