Legal Definitions - public float

Public float refers to the total value of a company's shares that are readily available for purchase and sale by the general investing public. It specifically excludes shares held by insiders, such as company executives, directors, founders, or large institutional investors who own a significant portion of the company and have a controlling interest. Essentially, it represents the portion of a company's ownership that is freely traded on the open market, indicating how much stock is truly liquid and accessible to individual and institutional investors without controlling stakes.

Here are a few examples to illustrate the concept of public float:

• Example 1: A newly public technology company.

  Imagine "InnovateTech Inc." just completed its Initial Public Offering (IPO). The founders and early venture capital investors collectively own 60% of the company's shares. The remaining 40% of the shares were sold to the public during the IPO. The value of these 40% of shares, calculated by multiplying the number of shares by their current market price, constitutes InnovateTech Inc.'s public float. The shares held by the founders and early investors are excluded because they are considered insiders with controlling interests, meaning they are not freely traded by the general public.

• Example 2: An established manufacturing firm with a strategic investor.

  Consider "Global Motors Corp.," a well-established company. A large private equity firm, "Apex Capital," owns 35% of Global Motors' shares and holds several seats on its board of directors, giving them significant influence over company decisions. The remaining 65% of shares are widely distributed among various individual investors, mutual funds, and smaller institutional investors. In this scenario, the 35% stake held by Apex Capital would typically be excluded from the public float because Apex Capital is considered an affiliate or controlling interest. Only the 65% of shares available to the broader, non-controlling public would count towards the public float, as these are the shares freely available for trading.

• Example 3: A pharmaceutical company undergoing a stock buyback.

  "MediCure Pharma" has 100 million shares outstanding. Initially, 80 million shares were part of its public float, with the remaining 20 million held by the founding family and executives. If MediCure Pharma decides to repurchase 10 million shares from the open market as part of a stock buyback program, these repurchased shares are no longer available for public trading. Consequently, the company's public float would decrease from 80 million shares to 70 million shares, as fewer shares are now freely available for public investors to buy and sell.