What does it mean when a company goes public?

When a company goes public it means it is going to sell stocks, stock in the company, to the public. A stock is a piece of ownership. Companies do it to raise money and also to raise awareness about the company. There are some other reasons too that I don’t understand well enough to explain them well. Reasons can have to do with merger and acquisition value and some other things that I can’t remember from business school.

“Going public” means that a company is selling its own stock on listed stock exchanges. What that means is that the company is offering shares of itself for sale to members of the general public, mutual funds and other members of the investing public (including other companies). When a company decides to list on public stock exchange such as NASDAQ or NYSE (New York Stock Exchange) it must follow strict accounting and disclosure rules about the business and publish the information in accessible ways so that any potential investor can look it over and decide whether or not to buy based on information that is (supposedly) available “to all”. That’s the ideal, anyway. It will always be the case that some “insiders” (owners, relatives, highly placed employees and others with strategic – and not widely known – knowledge of the business, the industry in general or the markets where they operate) will have additional information not available to the general investing public, but that should be the exception, and not the rule.

In addition to the general accounting, disclosure and reporting rules, membership in the NYSE is limited to businesses with certain capitalization minimums. That is, “big companies”. From time to time during business downturns you may hear of a company being “de-listed” from NYSE. In these cases, for a company who was seeking it to be listed on the NYSE is an event to be celebrated because they have “hit the big time” (and to be de-listed means that they are “not ready for prime time” – or at least that is the perception).

NASDAQ (and other global markets) all have their own rules that must be followed for companies to be listed, including total market capitalization, price-per-share of the IPO (Initial Public Offering), shareholder equity vs. management equity, and others that I’m not familiar with. I’m sure that if you go to the NASDAQ or NYSE exchange pages they can tell you more than you would ever want to know about what is involved in taking a company public and the listing requirements to be traded on the exchanges.

They offer shares in the company on a public platform to the general public.

Keep in mind that when you IPO (or sell additional stock) the company got paid. For the most part their obligation is done. (with the exception of some regulatory stuff mentioned by CWOTUS)

But generally employees are offered shares so that is the major motivation to care about the stock price of the company. Steve Jobs was only paid a dollar a year being the CEO of Apple. But he had a lot of stock so he cared.

I have stock in Apple. I can’t walk into a Apple store and exchange ten shares for a Macbook. Apple no longer cares about my shares. The only way to get anything out of the shares I own is to hope someone will buy them for more than I paid (capital gains) or a quarterly dividend. Apple never paid dividends until Jobs died and Tim Cook took over. Last quarter was 47 cents a share in a dividend. Which is actually really good. But they were under no legal obligation to pay that. From 1995–2012 no dividends.

And the whole sole purpose of a company maximizing shareholder value thing is bullshit:

He told Danhof that if he did not believe in climate change, he should sell his Apple shares. “If you want me to do things only for ROI reasons, you should get out of this stock,” he said.