Not unlike the private company (typically LLC), public companies would be another business form that exists in a large number of the western countries, as an option for trading and doing business.
Notably the complexity of this type of business is so significant that for most small and medium size businesses, this will never prove to be an option for conducting business, even though this type of company has a large number of similarities to a private company. For the most part the key characteristics of this type of company are:
1. The company is a Legal Person (artificial person), which protects shareholders against personal liability.
Not unlike the private company this type of company can trade, contract and even incur debts in the company name without any risk begin transferred to shareholders. The only risk to the shareholders would be the value of their shares, which they could lose in the event the company goes bankrupt.
2. Unlimited number of shareholders.
There is no limit on the number of shareholders that could hold shares in this type of company, and this number is only limited by the number of shares issued by the company.
3. The company is managed by shareholder votes, with a board of directors and CEO.
Typically shareholders get a regular opportunity to vote for specific individuals to sit on a board of directors, whom will make large decisions for the company, including selection of a CEO (who in turn would be responsible for day to day operations). Every so often there are also decisions that may go beyond the scope of authority of the board of directors, in which case questions are posed in general meetings with voting by shareholders.
4. The majority rules.
More than 50% of shareholder votes are usually required to make a significant decision within the management structure of the company. This vote is also often subject to a quorum (minimum percentage of shareholders must have voted for the vote to count).
Members of the board of directors who have been elected by shareholders usually are able to wield the votes of those shareholders by proxy (on their behalf).
5. Earnings to shareholders are paid as dividends only.
There is no other way to get a return on your investments, except for a possible variation in the price of the shares.
6. Shares can be freely traded on the stock exchange.
Shares of public companies are traded on local and often international stock exchanges, and are subject to the whims of the markets. Prices can fall or rise, often without any obvious reasons.
Notably any public company (also known as a company that is publicly traded) is subject to significant regulations and controls, which make operation of this type of company very expensive and complex.
It is very simple to buy and sell shares in a public company, and with technology and banking services advancing, it has become possible for anyone to buy and sell shares on a stock exchange, without significant cost.
7. Taxes are paid by the company on the profits of the company only.
Shareholders hold no obligation for company taxes and notably the company pays taxes on profits of the company only.
8. Shares are a possible source of funding for the company.
When a public company is in need of funding for some capital projects, instead of securing an interest bearing loan, they are able to easily issue shares which are then sold to new shareholders, to raise funds for a particular project. And though this may be possible in a private company as well, it is significantly more difficult to find potential investors for the shares held in a private company.
There may also be some alternative financial instruments available to a public company, that is not available to a private company.
In conclusion it should be noted that this is an extremely complex and very expensive way of doing business and most definitely not a suitable option for smaller businesses. This said, there may be a reason and an economic size at which point you do decide to take your company public.
In either case I would recommend you seek the proper legal advice before starting this type of company, in order to ensure that it will meet your specific needs.
I wish you all the best with your ventures and invite you to share your stories and comments here.
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