A public company, also known as a publicly traded company, is a legal entity whose stock is available for purchase and trade by the public.
A public company can be listed on a stock exchange, making it easier for investors to purchase stock in the company.
The formation of public company involves several stages, from setting up the company’s corporate structure to registering the company with regulatory bodies.
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In this post, we’ll discuss what a public company is and the various stages involved in its formation.
What is a Public Company
A public company is a company that has gone through the process of registering with the government to be able to trade its stock publicly. It is also known as a publicly-traded company or a publicly-held corporation.
Public companies offer their stocks for sale on major exchanges such as the New York Stock Exchange or NASDAQ and are often required to comply with various regulations and reporting requirements from the Securities and Exchange Commission.
These companies are usually large, well-established companies with hundreds of millions or even billions of dollars in annual revenue.
Investors buy shares of public companies in the hope of gaining a return on their investment by making money when the stock price goes up.
Some examples of public companies include Amazon, Microsoft, Apple, and Coca-Cola.
Formation of Public Company (Stages)
Here are four stages of formation for a public Company;
- Promotion Stage
- Incorporation
- Capital Subscription
- Commencement of Business
Promotion Stage
The promotion stage is the first stage of forming a public company. During this stage, the company must register with the securities exchange where it will list its stocks and provide its documents to the SEC. It should also announce that its shares are ready for sale to the public.
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The company must then develop a marketing plan to promote its shares. This includes hiring a financial advisor, preparing the prospectus for potential investors, and setting the initial public offering (IPO) price.
The company must also decide whether to use a traditional or digital marketing strategy.
Once the company is ready to go public, it must seek out potential investors. This can be done through advertising campaigns, road shows, and private placement offers. The company must also actively respond to investor inquiries.
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Lastly, the company must register its securities with the SEC. This is a complex process that requires a great deal of paperwork and disclosure of information about the company’s finances, operations, and management.
Once this process is completed, the company can officially list its shares and begin trading on the stock exchange.
Incorporation
The next step in forming a public company is the incorporation process. This is the legal process of creating the company’s legal structure and registering it with the state.
The process typically involves filing documents such as the Articles of Incorporation and Business Plan with the Secretary of State’s office in the state where the business will be based.
The documents outline the company’s purpose, ownership, and financial structure.
The registration process also includes obtaining federal and state tax identification numbers and permits or licenses that may be required by the state or local government.
It is important to note that the laws governing public companies vary from state to state, so the steps may vary depending on where the company is incorporated.
Once the incorporation documents have been filed, the company has a legal existence. At this point, the company can hire employees, buy or lease property, open bank accounts, and conduct business activities.
The company can now start issuing shares of stock to investors and raise capital to fund its operations.
Capital Subscription
The 3rd stage in forming a public company is Capital Subscription. This involves issuing shares of the company to the public, as well as offering shares for sale through stock markets.
In some cases, existing shareholders may also be able to buy additional shares of the company.
When a company decides to offer its shares to the public, it must issue a prospectus and have it approved by the regulatory authorities.
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This prospectus must include details about the company, its financial position, and how the funds raised through the share sale will be used.
Prospectus approval is a necessary step before any company can list itself on a stock exchange.
Once all the paperwork is in order, the company can start marketing and selling its shares to the public. It can do this either directly or through an investment bank or brokerage firm.
Before investing in a public company’s shares, investors should carefully consider the company’s prospectus and other publicly available information.
Finally, once all the shares are sold, the company has become a public entity and its shares are now traded on a stock exchange.
At this point, the company has reached the end of the formation process and is ready to begin operating as a public company.
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Commencement of Business
Once the company is registered and all of its documents are submitted, the company must then obtain the required permits, licenses, and registrations that it needs to legally begin doing business.
This includes permits for activities such as manufacturing, selling, and importing goods, as well as registering with the relevant government agencies and taxes.
The company must also decide on its organizational structure, such as appointing directors and setting up accounting systems.
It should also prepare the necessary financial documents, such as the balance sheet and income statement, which will be used to track profits and losses.
Once all of these requirements are met, the company can officially commence its business activities.
This is done by issuing a certificate of commencement from the registrar of companies which is proof that the company has started trading.
At this stage, the public company is finally ready to start operating and trading on the stock exchange.
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It is now responsible for providing annual financial statements and submitting them to regulatory authorities, as well as informing the public about any changes or updates to its operations.
Conclusion
The decision to form a public company is an important one, and it should not be taken lightly.
If you decide that a public company is right for you, the process of formation can be lengthy and involve numerous steps.
It’s important to ensure that all the necessary documents are in order and to understand the potential risks and rewards of the venture.
With careful planning and consideration, you may find that forming a public company can be a profitable venture.
