Public companies issue their shares to the public. A public company lists its shares at stock exchanges. Any individual from the general public can trade in the shares of these companies. Individuals who own shares of the company are called its shareholders. Public companies issue two types of shares: common shares and preferred shares. Their stake in the company and their liability is limited to the extent of their ownership. These companies need to periodically furnish their financial statements for the internal and external audiences.
Formation
A public company comes into existence when the incorporators issue its shares through an IPO, or initial public offering. The IPO offers only a small chunk of the company's authorized shares initially to the general public. Over a period of time, the remainders of the shares are sold. The company offers its shares either through stock exchanges or through stockbrokers. The company needs at least two individuals to buy its shares for it to come into existence and start its operations.
Corporate Entity
A public company has its own corporate and legal entity, distinct from that of its owners. The owners of the company are its shareholders. The owners, individually, aren't personally liable for the affairs and liabilities of the company. The public company purchases its own assets and acquires its own liabilities. It files for taxes individually in its own name. Shareholders can freely buy and sell the shares as per their discretion. Also, shareholders can transfer their shares to other individuals.
Shares
A public company issues two types of shares: preference shares and common shares. The shareholders are paid dividends whenever the company makes profits and chooses to distribute them among the shareholders. Preference shareholders get priority in payment of dividends. They're paid before common shareholders and after the company has paid its creditors. Common shareholders get the right to vote and govern the affairs of the company. The voting rights are in proportion to the number of shares they hold.
Financial Statements
A public company is mandated by law to submit periodic financial statements. These statements are made available to the general public. The statements are the company's balance sheet, profit and loss statement, cash flow statement and statement of retained earnings. The annual 10-K reports also need to be furnished. These statements are beneficial for all the interested parties. The government is able to ascertain if the company has paid the correct taxes due. The stock exchanges assess if the share meets all the criteria needed to be listed at stock exchanges. The shareholders and the creditors are able to evaluate if their money is in safe hands and whether they must continue to invest in the company.
