What does it mean to “take a company public”?


What does it mean to “take a company public”?

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A privately owned company is owned by one person or a group of people. New owners can come and old owners can go, but if you want to buy in or sell your share of the company, if can be difficult because you need to find somebody willing to buy and then agree on a value.

When a company is publicly traded, it means ownership can be bought or sold by anybody on a stock exchange. It makes it much easier to buy or sell ownership of any company.

Companies start as privately owned. At some point they may decide to become public. Usually because they want to raise money to expand. So they sell a share of the company in an IPO (initial public offering) to get a bunch of money. They then use that money to grow really fast.

Going public means offering shares of capital stock to the public on the open market. There are a number of regulations involved so that the public gets full disclosure about the company. Even so, many question whether an average person has nearly as much information as a big hedge fund or pension fund.

In the U.S., a company that goes public usually applies to list its shares on an established stock exchange, such as the New York Stock Exchange or NASDAQ. Often individual investors will wait to purchase shares until after a market price has been established and the shares are resold in the public market. That’s a far less risky purchase, but also less likely to be profitable.

The advantage of going public is far more access to capital, which can make the original investors quite rich and allows a successful company to grow to an enormous size. The disadvantage is the duty owed to numerous shareholders and the requirements imposed by laws and regulations designed to protect those shareholders.

publicly traded = anyone can buy/sell shares of company

privately owned = you need approval before you can buy/sell shares …