Mag Minds

General Blog

Operational Process and Mechanism of a Public Company in the United States

A publicly traded company is a type of organization that has been listed on at least one stock exchange for the traders to sell and buy the stock of the company with ownership, and also claim to the assets and liabilities of the company along with a profit. When it comes to a public company, it is constituted along with the shareholders, who essentially turn out to be the owner of the company, and it is up to the board members to set the management that controls the business operation and ensure profit generation of the company. There are multiple different legal obligations that a company needs to fulfill, to get the status of a Public company. There are a few regulations, that have been imposed by the regulatory bodies of the USA, and there are certain protocols that have been incorporated in the Constitution of the company, which have to be obeyed by all the shareholders and stakeholders.

Three main features of a public company.

As mentioned, in order to become public, a company needs to go through multiple different types of formalities and obligations. There are three major features that a public company needs to possess. They are as follows.

  • This type of company is characterized in terms of its size, which is calculated by its market capitalization. It essentially means that it is the market value of its share that is taken into consideration.
  • In the case of a limited company, not one individual would be held accountable and responsible in case of a lawsuit. It would be imposed on every single shareholder who constitutes the board of directors.
  • Perpetual succession is one of the striking features of the company. It means that when a board member retires, he would be succeeded by another individual.

These are some of the features of a public company. Besides, as mentioned, it has to be listed on the stock exchange, so that the shares can be bought and sold by the public.

How does a public traded company operate?

Every single business is considered private until it is declared public. For instance, an individual who started his business of selling electronic products back in the year 2012. Up until 2016, he was doing pretty well with his business, and then he decided to bring any investors, who understood that investing in this business would be a profitable venture. Over the span of the next four years all the investors, would participate as decision-makers since they had a stake in the company. Now, in order to gain more funding, the stakeholders of the investors decided to float a public offering in the market. To achieve this, a banking team is hired, that will take care of all the financial aspects. Once the valuation of the company is done, where all the financial aspects, assets, and liabilities, are taken into consideration value of the shares is determined. The next step is to get listed in one of the stock exchanges, where the public would be able to buy and sell the shares of the company. Once this is done, the company achieves the can of a public enterprise, where common citizens would participate in forming the governing body of the company.

In the end, it is to be mentioned that the operation of a public company is quite complex, and consists of a lot of legal obligations. Maintaining proper transparency is one of the key aspects that need to be taken into consideration to run a public company. Besides, when it comes to the financial statements, it has to be published every single year, so that all the shareholders get a true and fair view of the company’s financial position.


Related Posts