In the US, companies are not allowed to unfairly privilege some investors over others by giving them access to secret information that would let them judge the future prospects of the company. (Except in all the ways they can, but these usually involve some kinds of insider trading rules.) Private companies can handle giving out secrets to investors by literally writing and memo and mailing it to all their investors, if they want to give out some secrets to one of them.
Public companies cannot do that, even if they knew who all their investors were, but must instead consider every member of the public a potential investor, even if they don't already own the stock. Because of this, when public companies want to reveal material information about their future prospects, they must reveal it to everyone.
Besides the legal requirement, the reason these companies go public is often to provide liquidity for early investors or employees. So they do want to have as good of a margin story that they can, at least in terms of unit margin.
This is an interesting anomaly in the US. In the civilised world all corporations have to file public accounts, as the price for their limited liability. The detail and audit requirements depend on the size, turnover, staff numbers etc. This is because the shareholders are not the only stakeholder. The companies creditors, for instance, who are exposed to the limited liability have a right to see what they are lending to.
To answer the sibling comment, all of these public accounts follow local GAAP or IFRS.
The US still astounds me with its willingness to allow corporations to rip people off!
Isn't there a limit on the public markets where if a company has less than a certain percentage of its ownership traded publicly then it is no longer a public company and therefore de-listed?
I remember hearing about a guy trying to squeeze out short sellers of his own company but ended up effectively taking his company private because he bought out like 95% of all the shares.
I wonder how that aligns to these small releases of stock for the public.
Not really, how much of a public company are you when 5% of your capital is public ?
That doesn't matter for the legal requirements.
The short and only kind of wrong version is:
In the US, companies are not allowed to unfairly privilege some investors over others by giving them access to secret information that would let them judge the future prospects of the company. (Except in all the ways they can, but these usually involve some kinds of insider trading rules.) Private companies can handle giving out secrets to investors by literally writing and memo and mailing it to all their investors, if they want to give out some secrets to one of them.
Public companies cannot do that, even if they knew who all their investors were, but must instead consider every member of the public a potential investor, even if they don't already own the stock. Because of this, when public companies want to reveal material information about their future prospects, they must reveal it to everyone.
The percentage is irrelevant for this discussion. As soon as you’re public, you need to report detailed financial numbers.
Besides the legal requirement, the reason these companies go public is often to provide liquidity for early investors or employees. So they do want to have as good of a margin story that they can, at least in terms of unit margin.
Plus, you have to do real GAAP accounting, not their made up metrics.
That's changing with this administration though. Reduced reporting cycles reduce transparency.
2 replies →
This is an interesting anomaly in the US. In the civilised world all corporations have to file public accounts, as the price for their limited liability. The detail and audit requirements depend on the size, turnover, staff numbers etc. This is because the shareholders are not the only stakeholder. The companies creditors, for instance, who are exposed to the limited liability have a right to see what they are lending to.
To answer the sibling comment, all of these public accounts follow local GAAP or IFRS.
The US still astounds me with its willingness to allow corporations to rip people off!
4 replies →
Isn't there a limit on the public markets where if a company has less than a certain percentage of its ownership traded publicly then it is no longer a public company and therefore de-listed?
I remember hearing about a guy trying to squeeze out short sellers of his own company but ended up effectively taking his company private because he bought out like 95% of all the shares.
I wonder how that aligns to these small releases of stock for the public.