January 22, 2021


Accounting + Finance Blog

Meaning of Public Company and Key Explanations

Meaning of Public Company and Key Explanations

Businesses are formed for various purposes. Not times the purpose will determine if it should be a sole trader, partnership or a company. A corporation can be a public or private company. This article examines public company.

Definition of Public Company

A company whose Memorandum of Association states clearly that it is a public company (PLC) and has the right to transfer its shares.

It can also be defined as a type of company that can trade its shares in a recognized stock exchange market or an over the counter (OTC) market.

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Meaning of Public Company and Key Explanations

Key Explanations

The MoA states PLC. According to the Company Act, the corporation must state in its Memorandum of Association (MoA) that such business is a Public Liability Company (PLC). And the acronym must be attached to the name of the firm. For example, Nestlé PLC, Access Bank PLC and so on.

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It can transfer its shares. The Articles of Association (AoA) must states that the company can transfer its shares. This means that it can trade its shares in a shares market, such as the Nigerian Stock Exchange. And can issue an Intial Public Offering (IPO).

It does not restrict shares right. Unlike private companies, publicly traded entities allow their owners to sell their shares at will. This means that if I own shares of a public company, I may decide to sell the shares at my own free will.

It can also trade its shares in an OTC market. Companies that do not meet the requirements for a recognised stock exchange market may use an alternative trading platform like the OTC market.

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Other things you should know

The minimum persons allowed to establish a public company is 7. It doesn’t have a maximum number. A public corporation can have as many shareholders as possible.

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Most public companies were private companies. A company should have operated for a minimum of 5 to 10 years before it can be allowed to be listed in a stock exchange. Jumia operated for 5 years before it was listed in the New York Stock Exchange. MTN Nigeria has been in operation for more than 10 years before it quoted its shares in the Nigerian Stock Exchange.

However, most deposit money banks can become public companies within the first year of operation. This is because the Company Act does not allow this sector to operate as private companies.

However, there are exemptions. The exemption is based on what is allowed by the Central Bank of Nigeria. For example, Cities Bank is domiciled in Nigeria. But it does not trade its shares in the Nigerian Stock Exchange Market.

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In conclusion, publicly traded companies are those that can buy and sell shares in a well-organised stock exchange market or an over the counter market. Public corporations do not restrict the right to sell their shares.

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