A public corporation is one which is authorized to sell its stock to the public. The process involved in obtaining authorization to qualify as a public company is both costly and very time consuming. Ongoing requirements to maintain a public corporation are also costly and require a great deal of legal and accounting expertise.
For these reasons, it is generally not beneficial or realistic for smaller companies to attempt to go public. In the past few years, the reporting requirements for public companies have grown and require more legal and accounting expertise and expense.
One example is that public companies are now required to have independent board members (meaning they cannot be shareholders or have significant benefits in the company) and an independent auditing committee that oversees the company’s financial matters.
Due to the potential liability of being on the board of directors or on the audit committee, few people are willing to serve unless they are paid a substantial sum of money and are provided with liability insurance from the company.
Liability insurance for directors of a public company is expensive. Because of the many requirements placed upon public companies, some companies, which were once public companies, have opted to become private companies. When a business has grown substantially and has sufficient revenues, it might consider going public.
The benefits include the ability to sell stock to the public to raise money and it provides an exit strategy to the original shareholders or owners by giving them a way to cash out of the company. It also provides shareholders with a more liquid investment because there is a public market where they can sell their shares.
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