Definition: A company that has previously held an initial public offering (IPO), after which its shares became available for trading among investors who use their brokers to carry out their buying and selling.Example: Facebook is a publicly-held company. Its IPO took place on May 18, 2012. Since that date, investors have been able to buy and sell Facebook’s shares amongst each other.
Investeach explains: Being publicly held has advantages as well as disadvantages. On the downside, companies must follow the extensive rules and regulations the Securities & Exchange Commission (SEC) has put in place to protect shareholders. On the plus side, being public significantly raises a company’s profile with the enormous investment community. If they ever wish to, companies that have established a track record of revenue and profit growth can raise additional money by selling new company shares to this same investing community. This ‘access to capital’ is a major advantage of being public.
Most large companies are publicly held, but not all. Mars, maker of M&Ms, is a great example. If you wanted to own shares of the company, you’d have to find an owner of Mars shares and offer to buy them. Next, there’s the question of price. How much is each share of Mars worth when the last trade may have taken place weeks or months ago?
That brings us to a significant advantage of being publicly held: an active market of investors who, after evaluating all of the available information about the company, then buy and sell each share at what they agree is a fair price. Not so with private corporations.
How vibrant the market of buyers and sellers is usually depends on how large the company is. The larger the company, the more shares there will be outstanding. The more shares outstanding, the greater the number of owners (and number of investors interested in becoming owners). The greater the number of owners and potential owners, the greater the number of them who will be buying and selling amongst each other.
Incidentally, a thriving market within which owners are able to sell their shares quickly at a price close to the price the shares have recently been selling for is known as *liquidity*.
Riddle me this:
1. What is the most significant disadvantage of being publicly held?
2. What is a major advantage of being publicly held?
3. Identify a large company that most of us recognize that is not publicly held.
4. What advantage do owners of publicly-held companies have over owners of shares in private companies?
5. Which company characteristic has a significant influence on how vibrant the trading market is for its shares?
5. What do we call the ability to sell shares of one’s stock quickly and at a price that’s similar to the trades which have recently taking place?