What it means
A public company has sold shares to outside investors and listed them on an exchange, so the shares have a visible market price every trading day. Anyone with a brokerage account can become a part owner, which is why these businesses can raise large sums of money from many small investors.
The price of that access is disclosure. Public companies must publish audited accounts, quarterly or half-yearly results and details of how directors are paid, and they must announce significant events promptly.
A private company can keep nearly all of that information to itself. Being public changes how a business behaves.
Management is judged against analyst forecasts every few months, share price movements affect staff share plans and acquisition currency, and large shareholders can influence strategy through votes at the annual meeting. Many founders find the scrutiny the hardest part of the change.
The second meaning refers to government. The public sector covers state bodies, public schools and hospitals, and state-owned enterprises, and its finances are reported on rules that differ from those of commercial companies.
When a news report says public finances are under pressure, it is talking about government borrowing and spending. There is also a third, looser use: the public as the general population, as in public offering or public relations.
In a business meeting, always ask whether someone means listed on an exchange, owned by the state, or aimed at the general population. Mixing up the meanings is a common source of confusion in news reports and in meetings.
A final nuance is that public does not mean owned by the public in any equal sense. Ownership of a listed company is usually concentrated in institutions, funds and a few large holders, while most individual investors own a very small share.
Index funds and pension schemes hold a large part of most big listed companies on behalf of millions of savers.
In practice
Real-world examples.
Example
A founder-led software company with 300 employees decides to list on a stock exchange. Its finance team spends a year building quarterly reporting, strengthening internal controls and preparing a prospectus. After listing, the chief financial officer presents results to analysts every three months. The first full set of public results takes the team almost four months to prepare, because every number must be traceable to the audited records.
Example
A city government plans a new water treatment plant and funds it by issuing bonds to investors. Its finance department reports under public sector accounting rules, which focus on budget compliance rather than profit. Residents see the project in the annual report of the city, not in a share price. The council's finance director answers to elected members and to an external auditor rather than to shareholders.
Example
A logistics business owned by three families is approached by a larger rival. Because it is private, it can negotiate quietly without any announcement. If it had been public, the discussions would have needed careful handling of price-sensitive information.
Case study
Seen in the real world.
Pinecrest Foods is an illustrative, fictional manufacturer that spent twenty years as a private family business. A growth plan needing $120,000,000 for new plants led the board to consider a stock market listing.
The finance director listed the changes it would bring. The company would need audited accounts to a higher standard, an investor relations function, an independent audit committee and a policy on how to announce news.
After a long debate the family chose a listing, keeping a majority holding to preserve control. The listing was completed the following year and raised the money needed for the first new plant. The illustrative lesson is that going public is a trade: cheaper, larger funding in exchange for transparency and constant scrutiny.
Watch out
Common mistakes.
- Assuming public means government-owned, when in company language it means the shares are open to trading by outside investors.
- Thinking a public company is owned equally by ordinary people, when institutions and a few large holders often own most of the shares.
- Treating private and public companies as having the same reporting duties, when listed companies face much stricter disclosure rules.
Questions
People also ask.
What is the difference between a public and a private company?
A public company has shares traded on an exchange and must disclose detailed information, while a private company has no open market for its shares and discloses far less.
What does public sector mean?
It means the part of the economy run by government, including state departments, public services and state-owned enterprises. Its accounts follow public sector reporting standards, and its goals are service delivery rather than profit.
Can a public company become private again?
Yes, through a buyout or delisting, in which the shares are purchased from outside holders and withdrawn from the exchange. Companies often do this to escape the cost and pressure of public reporting, or because a buyer offers a premium for the shares.
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