Public companies sell shares to the public, raising capital quickly. They are closely monitored by the SEC, and must first incorporate to become a legal entity. Ownership is shared and can be exchanged through the sale of shares. IPOs raise billions of dollars for companies, and subsequent sales occur between investors. Stock prices reflect a company’s fortunes, and dividends are periodic payments based on performance. Despite occasional declines, stocks are generally considered a safe long-term investment.
A public company is a company owned by members of the public by virtue of their acquisition of ownership shares on the open market. Public companies sell shares they own, as a large amount of capital can be raised very quickly with a public offering of stock. In the United States, many aspects of a public company’s operations, especially its relationships with its shareholders, are closely monitored and regulated by the Securities and Exchange Commission (SEC), an agency established by the United States government in 1934, as part of its response to the great depression, to regulate stock markets and prevent corporate abuse.
To become a public company, a business must first incorporate, i.e. become a corporation. Incorporation is a legal process that gives the company official legal personality. Corporations can therefore be characterized as an imaginary person, a legal person or a legal person, as opposed to a natural person. Corporations have many of the same rights as individuals, such as signing contracts, and many of the same responsibilities: Corporations must obey the same laws as everyone else, as well as corporate laws enacted to govern corporate behavior. They cannot vote, however, and are not required to serve on juries, even if they are taxed.
Three common features of any incorporated business are that leadership is vested in a board of directors, ownership is shared among those who have contributed to the company’s equity, and ownership can be exchanged through the sale or transfer of shares. However, only the shares of a public company can be sold to the public in the open market.
Once incorporated, a company must then apply for SEC approval to offer its shares to the public on a major exchange. When approval is granted, the shares are sold by the company to the public in an initial public offering (“IPO”). The proceeds from the sales in the IPO go back to the company, which is the reason for the sale of the shares in the first place; many IPOs have raised billions of US dollars (USD) for the companies that issued them. Subsequent sales of the company’s stock usually occur between investors, and none of the funds involved in such transactions are returned to the company. Many companies retain ownership of some of their shares to sell at a future date to raise funds.
While a public company sells shares it owns to raise quick cash, members of the public usually buy those shares in anticipation of the investment gaining value over time. This can happen in two different ways. The first is the appreciation of the share price itself &emdash; a company’s stock price reflects its fortunes in the market & emdash; and when a company does well, its stock generally increases in value. The second is the anticipated dividend & emdash; periodic payments made by many companies to their shareholders. These payments are determined by the company’s board of directors and are based on the company’s performance.
While the stock of any public company may periodically decline in value, ownership of stocks in general, and especially a portfolio consisting of many different stocks, is generally considered a safe long-term investment because in the past such investments have generally yielded very good over time.
Protect your devices with Threat Protection by NordVPN
