Publicly traded companies offer shares to the public, while private companies do not. Companies may conduct an IPO to become publicly traded, but must disclose financial information and face increased scrutiny. Private companies have fewer shareholders with larger stakes.
Publicly traded companies are companies with shares that any member of the public can buy or sell. This is in contrast to private companies, which do not offer shares on the open market. When companies are established, they are usually private. As they grow, they may choose to conduct an initial public offering (IPO) to start selling shares to the public and become publicly traded companies. There are advantages and disadvantages to going public that need to be weighed when preparing to sell shares to members of the public.
If a company wants to become a public company, it needs to make a series of financial filings. These filings are intended to protect investors by forcing companies to make their financial information publicly available so that people will have that information when making decisions about which shares to buy and at what price. This information is published in a document called a prospectus that also provides general information about the company, the products it offers and projections for its financial future.
If a company appears strong after the prospectus is reviewed, government regulators allow it to start selling shares on the open market. Many publicly traded companies choose to go public. During the exchange, your shares can be bought and sold on the floor of the exchange between members and brokers. The company must continue to file financial disclosures to remain listed on the exchange. Falsifying or misrepresenting financial information may be grounds for delisting and legal penalties.
Publicly traded companies often do an IPO to raise funds for expansion, investment, and other needs. However, once a company goes public, it must disclose financial information even if competitors can use it against it. You are also at risk of being taken over if you offer too many shares, allowing people the opportunity to buy a controlling interest. Publicly traded companies are also subject to increased financial scrutiny, which may not be to the taste of all companies.
It is possible to obtain shares in a private company, but only with the consent of the owners. Private companies generally have relatively few shareholders, all of whom have large interests in the company. For example, a family business would have family members as shareholders. By contrast, publicly traded companies have numerous shareholders who only hold very small stakes in the company.
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