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What is Publicly Traded Stock?

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  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 04 December 2018
  • Copyright Protected:
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    Conjecture Corporation
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Publicly traded stock refers to ownership opportunities that are made available on the open market. These opportunities are divided into increments known as shares and are generally sold through a stock exchange. When investors purchase these shares, they gain access to profit potential and generally earn rights. The companies that sold the stock become accountable to these investors.

One of the major differences between publicly traded stock and private investment opportunities is accessibility. Privately held companies may offer ownership opportunities, but they can be selective in doing so. The owner of a private business may limit the offer to family, friends, or professional associates. Publicly traded stock, however, is accessible to everyone.

When a company offers publicly traded stock, it basically has a big pie, which is placed for sale on a stock exchange. That pie is divided into small segments known as shares, and based on numerous factors, a share price is set. Investors who decide that they want to obtain a stake in the company then buy as many shares as they would like.

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The benefit of purchasing publicly traded stock is that it gives an investor stake in a company. If the business does well, the investor will share in the profits. This is possible because the value of each of his shares can increase in value. When this happens, he can sell the shares and collect his initial investment plus the profits. The investor will also reap financial benefits if the company pays dividends.

Companies benefit from publicly traded stock because selling shares is a revenue source. To have its securities traded on the open market, however, a company must first be designated as public. This involves a process that is generally extensive and expensive. If the company is successful, it will be subject to regulations that its private counterparts are not. Depending on the jurisdiction, there may be a requirement for companies to disclose the investors who own substantial amounts of their publicly traded stock.

Other regulations include a wide range of reporting requirements, such as drafting financial statements. This information is usually important to individuals who are considering a company's stock. It provides them with a basis for making decisions. When investors purchase publicly traded stock, the companies that they have invested in owe them more than documentation. Investors generally have rights, including those that allow them to vote on a wide range of matters, such as the board of directors.

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