The Advantages of a Publicly Traded Corporation
There are two main types of corporations: the publicly traded corporation and the closely held corporation. In a closely held corporation, there are few shareholders, who control limited amounts of shares. Most corporations in the United States are closely held corporations. But the largest corporations in the world are publicly traded, which means that shares of ownership in the company are sold on a stock market like the New York Stock Exchange. Average investors and hedge fund managers purchase these shares and become part owners in the company.
In these large corporations, the shareholders vote for corporate leadership. The resulting board of the company runs its day-to-day operation for the good of the shareholders, using their business expertise to grow the company and provide for as much of a financial return per share as possible.
Publicly Traded vs. Closely Held
While closely held corporations have some inherent advantages over their larger counterparts (such as the ability to react to change quicker and the fact that they don't need to answer to the market at-large), the publicly traded corporation also has some major advantages. These include:
- Selling shares. The publicly traded corporation can raise large amounts of capital by issuing shares on the open market. The larger amount of funding means that the corporation can have a larger pool of working capital.
- Debt split more ways. Because of the larger number of investors, any debt accrued by the corporation is spread over a larger number of shareholders. Each individual shareholder takes a much smaller hit than he or she would in a closely held corporation.
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