I have been fiddling with my material for my Fall 2023 Business Organizations class at UWLA, my 18th year of teaching the class. I decided to remind myself about which corporations qualify as “pubic companies.” A public company, to my way of thinking, is a corporation which is required file a bunch of different kinds of reports with the Securities & Exchange Commission (“SEC”). The reports require an immense amount of disclosure about every conceivable aspect of the company operations which are then available to the public, thus the public company. When Elon Musk bought Twitter, it was no longer a public company and the disclosures have stopped. The public can no longer easily see what is going on behind the curtains.

So which companies are required to report to the SEC? The answer is corporations with at least $10 million in assets and with at least 2,000 different shareholders. I wanted to make sure my memory was right and that the SEC had not changed the rule since I last looked. I needed the appropriate SEC regulation which I did not have handy.

I decided to take a short cut and did a google search of “What is a public company?” I clicked on probably ten different sites before I finally saw the SEC reg that gave me the answer. What struck me however is the number of sites that had definitions for public companies which were wrong and some very wrong. And these are sites that have at least facial credibility.

Investopedia for example defined public company as “a corporation whose shareholders have a claim to part of the company’s assets and profits.” Huh? First of all, to the extent that statement is true, it applies to every corporation. Second, I would not say that shareholders “have a claim” to corporate assets or profits. I suppose it’s true in an ultimate sense but it is misleading in any event and has nothing to do with public corporations.

A site called Britannica (and a few other sites) defined public company as “a company that issues shares of stock to be traded on a public exchange or an unlisted securities market. . . . in all cases public companies list their shares on a public market.” Shares are not “issued to be traded on a public exchange.” Shares give the owner certain rights set forth in the Articles of Incorporation. After that, the shares, with whatever rights that they have, may or may not be traded on an exchange or other market. The promoters of the corporation may have an eye to selling enough shares to get listed in some trading market but that is not what makes it a public corporation. And not all public companies “list their shares on a public market” although, obviously, many do.

Others: Masterclass.com says “A public company is an incorporated entity that sells ownership shares in capital markets.” Corporatefinancialinstitute.com says, “Public companies are entities that trade their stocks on the public exchange market. . . . The company is considered public since any interested investor can purchase shares of the company in the public exchange to become equity owners.” Many public companies’ shares are traded on stock exchanges but that’s not what makes them a public company.

The SEC website says, “‘Public companies,’ often referred to as reporting companies, are subject to reporting requirements and must file certain reports, including annual, quarterly, and current reports, with the SEC on an ongoing basis.” Thank you.

Anyway, my purpose for this blog post is to show the danger to students of doing short cut legal research on the internet. My experience is that more and more students, when it’s time to answer a law school question, simply do a quick internet search and copy and paste the first thing they find. I can usually tell immediately when the student is doing that because, first, the answer given is not what we discussed in class. Second, the rule propounded in the student’s answer is usually somewhere between partially right and completely wrong. The most common error, by the way, with website legal advice is that the website does not set forth the rule but instead explains the effect of the rule. That’s really what most people who search the internet are trying to find I assume. The statement that the shares of many public companies are traded on various stock exchanges is a true statement. But it does not tell us the rule; does not answer “what is a public company.”

We are lawyers. Most rules are blackletter statements given to us by Congress, our legislatures, or other governmental agencies. Some rules are given to us by courts. We use the rule to answer a specific question for our client. It is important that we start with the correct rule. You will rarely find the correct rule on the internet. Hopefully (although rarely in my experience), you will find the statute, the code section which is the rule.