The Process of Becoming a Publicly Traded Company
For a company to be publicly traded, it first must register with the Securities and Exchange Commission (SEC). This process requires financial records and other key information to be disclosed to the public. This is done through the filing of documents known as a “registration statement”. After filing the registration statement, the SEC reviews the documents and makes sure that all the information provided is accurate and honest.
Once the SEC has completed its review, the company is then allowed to list itself on an exchange, such as the New York Stock Exchange or NASDAQ. Once listed, the company’s stock is freely consumer-buyable and sellable by the public.
Advantages and Disadvantages of Being Publicly Traded
Being publicly traded comes with many advantages, such as increased capital, liquidity, and visibility. Companies can take advantage of the access to capital and funds through an initial public offering, where they can issue shares and reap the benefit from the public market. Additionally, with liquidity comes the ability to more easily predict financial growth or loss based on the market’s reaction. Finally, the increased visibility leads to new customers and increased brand awareness.
However, there is a certain level of risk that comes with being publicly traded. A company is subject to greater scrutiny because of its expanded public presence and transparency. They must keep up with the regulations that govern publicly traded companies, which can add additional costs. Additionally, public companies’ shareholdings can make them prone to hostile takeovers, which can lead to uncertainty within the company and its employees.
Role of Regulatory Bodies in Publicly Traded Companies
Regulatory bodies such as the SEC, the Financial Industry Regulatory Authority (FINRA) and the National Association of Securities Dealers (NASD) play an important role in protecting investors and the public from fraudulent activities and malpractice. They are also responsible for maintaining the integrity of the financial markets.
The SEC’s role is to examine companies to make sure their financial reports are accurate and up to date. The FINRA sets and enforces the rules for people and firms that sell securities. The NASD’s role is to maintain a fair and structured auction market in which securities are bought and sold on a regular basis.