When a company "goes public," which of the following best describes what happens?

• A. Only a small group of private investors are allowed to invest in the company.
• B. The company can no longer issue any new shares.
• C. The company is required to stop all financial reporting to the public.
• D. The company's shares become available for purchase by the general public on a stock exchange.

Answer: (D)

Verified step by step guidance

1. Understand the concept of 'going public': When a company 'goes public,' it means the company is transitioning from private ownership to public ownership by offering its shares for sale to the general public through a stock exchange.
2. Clarify the implications of going public: The company is now subject to regulations and reporting requirements set by governing bodies like the Securities and Exchange Commission (SEC) in the United States. This ensures transparency for investors.
3. Eliminate incorrect options: Analyze each option provided in the problem. For example, 'Only a small group of private investors are allowed to invest in the company' is incorrect because going public means shares are available to the general public, not just private investors.
4. Evaluate the correct option: The correct description is 'The company's shares become available for purchase by the general public on a stock exchange.' This is the defining characteristic of a company going public.
5. Summarize the process: Going public allows the company to raise capital from a broader pool of investors, increases its visibility, and subjects it to stricter financial reporting and governance standards.