Category Archives: Government

Understanding Public Companies – Sentinel Financial Education Series

Public companies are a key part of the American economy.  They play a major role in the savings, investment, and retirement plans of many Americans.  If you have a pension plan or own a mutual fund, chances are that the plan or mutual fund owns stock in public companies.  Like millions of Americans, you may also invest directly in public companies. But do you really understand what the market is about? What public companies are? How they are traded?

The Sentinel Financial Education Series is designed to answer questions, bring understanding, inform and educate. So…

What Is a Public Company?

The term “public company” can be defined in various ways.  There are two commonly understood ways in which a company is considered public:  first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public. 

In general, we use the term to refer to a company that has public reporting obligations.  Companies are subject to public reporting requirements if they: 

  • Sell securities in a public offering (such as an initial public offering, or IPO;
  • Allow their investor base to reach a certain size, which triggers public reporting obligations; OR
  • Voluntarily register with us.

Public Companies

Public companies are a key part of the American economy.  They play a major role in the savings, investment, and retirement plans of many Americans.  If you have a pension plan or own a mutual fund, chances are that the plan or mutual fund owns stock in public companies.  Like millions of Americans, you may also invest directly in public companies.

What Is a Public Company?

The term “public company” can be defined in various ways.  There are two commonly understood ways in which a company is considered public:  first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public. 

In general, we use the term to refer to a company that has public reporting obligations.  Companies are subject to public reporting requirements if they: 

  • Sell securities in a public offering (such as an initial public offering, or IPO;
  • Allow their investor base to reach a certain size, which triggers public reporting obligations; OR
  • Voluntarily register with us.

A private company also can become subject to public reporting requirements by merging with a public shell company.  This process is called a reverse merger.  As with any investment, investors should proceed with caution when considering whether to invest in reverse merger companies.

As mentioned, we view companies as public if they are subject to public reporting obligations.  There are instances, however, where the securities of a company that does not regularly report business and financial information to the public are nonetheless traded on smaller public markets.  Investing in these companies is riskier as there can be little public information to allow investors to make an informed investment decision.

Transparency and Continuing Disclosures

A public company’s disclosure obligations begin with the initial registration statement that it  files with the SEC.  But the disclosure requirements don’t end there.  Public companies must continue to keep their shareholders informed on a regular basis by filing periodic reports and other materials with the SEC.  The SEC makes these documents publicly available without charge on its EDGAR website.  The filed documents are subject to review by SEC staff for compliance with federal securities laws. 

Following are some of the reports that may be filed by U.S.-based public companies.  Foreign companies that file reports with the SEC may file different types of reports.

  • Quarterly Reports on Form 10-Q.  Public companies must file this report for each of the first three quarters of their fiscal year.  (After the fourth quarter, public companies file an annual report instead of a quarterly report.)  The quarterly report includes unaudited financial statements and information about the company’s business and results for the previous three months and for the year to date. The quarterly report compares the company’s performance in the current quarter and year to date to the same periods in the previous year.
  • Current Reports on Form 8-K.  Companies file this report with the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate leadership (such as a new director or high-level officer), and preliminary earnings announcements.  For more, see our How to Read an 8-K.
  • Proxy Statements.  Shareholder voting constitutes one of the key rights of shareholders.  They may elect members of the board of directors, cast non-binding votes on executive compensation, approve or reject proposed mergers and acquisitions, or vote on other important topics.  Proxy statements describe the matters to be voted upon and often disclose information on the company’s executive compensation policies and practices.
  • Additional Disclosures.  Other federal securities laws and SEC rules require disclosures about a variety of events affecting the company.  These include proposed mergers, acquisitions and tender offers; securities transactions by company insiders, and beneficial ownership by a person or group that reaches or exceeds five percent of the company’s outstanding shares.    

Public Disclosures Protect Investors

Our federal securities laws are based on public disclosure by companies of meaningful business, financial and other information.  Public disclosure by companies serves to advance the mission of the SEC.

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IRS Abandons Facial Recognition Plans

February 7, 2022 – Mike Spillan, Editor

WASHINGTON — The IRS announced it will transition away from using a third-party service for facial recognition to help authenticate people creating new online accounts. The transition will occur over the coming weeks in order to prevent larger disruptions to taxpayers during filing season.

During the transition, the IRS says it will quickly develop and bring online an additional authentication process that does not involve facial recognition. Instead, The agency will also continue to work with its cross-government partners to develop authentication methods that protect taxpayer data and ensure broad access to online tools.

“The IRS takes taxpayer privacy and security seriously, and we understand the concerns that have been raised,” said IRS Commissioner Chuck Rettig. “Everyone should feel comfortable with how their personal information is secured, and we are quickly pursuing short-term options that do not involve facial recognition.”

Unfortunately, privacy experts have expressed additional concerns about the IRS’ “work with it’s cross-government partners” as well.

Still, the transition announced today should not interfere with the taxpayer’s ability to file their return or pay taxes owed. During this period, the IRS will continue to accept tax filings, and it has no other impact on the current tax season. People should continue to file their taxes as they normally would.