Publicly Traded Company: Definition, How It Works, and Examples

A publicly traded company is one whose shares are listed on a stock exchange, allowing investors to buy and sell shares in the company. These companies offer a portion of their ownership to the public through the issuance of stocks. By doing so, they can raise capital for expansion, pay off debts, or finance new projects. Public companies are subject to regulatory oversight, including financial reporting and transparency requirements, to protect investors and ensure fairness in the market.

Publicly traded companies follow a specific process to operate:

• Initial Public Offering (IPO): The company first offers its shares to the public through an IPO to raise capital.
  

• Share Trading: Once the shares are public, they can be bought and sold on stock exchanges, such as the NYSE, NASDAQ, or BSE.
  

• Shareholder Ownership: Investors who buy shares become partial owners of the company, entitling them to dividends and any capital gains.
  

• Disclosure Requirements: Companies are required to disclose their financial performance and any material developments regularly.
  

• Regulation: Publicly traded companies are regulated by bodies like the SEC in the US or SEBI in India, ensuring compliance with the rules for fairness and transparency.
  

Example: Apple’s shares are publicly traded on the NASDAQ. Investors can purchase shares, and the company must provide quarterly earnings reports to comply with SEC regulations.

Publicly traded companies have distinct features:

• Listed Shares on Exchanges: Their shares are available for purchase and sale on stock exchanges, providing liquidity.
  

• Regulatory Oversight: These companies are governed by financial regulators (e.g., SEC, SEBI), ensuring transparency and compliance with laws.
  

• Transparency: Regular financial reporting is required, making financial information publicly available for investors.
  

• Liquidity: Shares are easily tradable, allowing investors to buy and sell as needed.
  

• Wide Ownership: These companies have diverse ownership, with shares distributed among institutional and individual investors.
  

Examples of well-known publicly traded companies include:

• Global Companies:
  

  • Apple Inc. (AAPL)
    

  • Microsoft Corporation (MSFT)
    

  • Tesla Inc. (TSLA)
    

• Indian Companies:
  

  • Reliance Industries (RELIANCE)
    

  • Tata Consultancy Services (TCS)
    

  • Infosys Limited (INFY)
    

Example: Apple’s stock price is approximately $145 per share, and it is traded on NASDAQ, giving investors access to purchase shares of the company. In India, Reliance Industries is listed on the BSE and NSE with a share price of ₹2,200 per share, making it one of the most valuable publicly traded companies.

Publicly traded companies enjoy several benefits:

• Access to Capital: They can raise funds easily by issuing shares to the public through IPOs. This capital can be used for expansion, acquisitions, or debt reduction.
  

• Brand Visibility: Being listed on a stock exchange increases a company’s visibility and may enhance visibility and credibility with consumers and investors.
  

• Liquidity for Investors: Investors can buy and sell shares with relative ease, ensuring liquidity in the market.
  

• Attractive for Employee Stock Options: Publicly traded companies can offer stock options to employees as a way of incentivising performance.
  

• Opportunity for Expansion: With access to public funds, these companies can expand operations and enter new markets.
  

Example:
Microsoft (MSFT), by being publicly traded, raised billions through stock offerings, enabling investment in product development and acquisitions such as LinkedIn in 2016 for $26.2 billion.

Despite the advantages, there are several downsides:

• Compliance Costs: Publicly traded companies must incur significant costs related to regulatory compliance, such as auditing, reporting, and corporate governance.
  

• Shareholder Pressure: They are often under pressure from shareholders to meet financial targets and deliver short-term profits.
  

• Market Volatility: Stock prices can be volatile, which may impact the company’s stability and investor perception.
  

• Risk of Takeover: Public companies are more susceptible to being acquired or taken over by larger competitors.
  

Publicly traded companies offer various opportunities, providing access to capital and greater visibility. However, they come with regulatory requirements and market pressures that private companies may avoid. Understanding the differences between publicly traded and privately held companies is essential for investors seeking to navigate both types of markets. For example, Reliance Industries, a publicly traded company, has been able to raise billions of dollars to fund expansion, whereas Koch Industries, a privately held company, operates with more control and fewer regulatory hurdles. Both have their advantages and disadvantages, depending on the investor’s goals.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.