The Advantages of Going Public for the Stock Exchange

Businesses go pubic to gain more capital and increase recognition.

Going public refers to the process of opening a business up for investment by investors of all kinds. Business shares are created and then sold on a public market, such as the New York Stock Exchange. The company is then publicly held, and the investors that buy company stock have a say in how the business is run, depending on the percentage of the shares that they hold. This drastically changes a company, but there are several key benefits that cause businesses to choose this option.

IPOs

Once a business becomes large enough, usually with annual revenue in excess of $10 million, it is ready to consider an initial public offering, or IPO, or initial public offering, where it makes stock available for sale for the first time. There is a lengthy process that must be accomplished on the way to an IPO, including an application to the Securities and Exchange Commission. This can take several months or sometimes as long as a few years. Legal fees can also be expensive.

Funding

The main reason companies go public is to raise capital. By selling shares to investors, a business can quickly gain a large amount of money to help grow the business and finance new projects or continuing project. This step also allows owners or initial investors to sell any shares they might own to make money while cashing out their own investments. While a business should not try to go public just to get enough funds to recover from problems, it is an excellent way to finance long-term goals.

Marketing

Going public is truly going public: the company's information will now be available, not only to investors but to other companies and to consumers of all kinds. The earnings and salaries of a public company's corporate management are all documented in reports made public by the SEC. This unveiling of business information is generally considered to be a positive development: more people will have access to knowledge about the business and hear its name. This increased interest is good for marketing and helps raise brand awareness.

Employee Benefits

Now that the business has public shares, it can use them as leverage in several situations, most notably employee benefits. With public shares, the company can offer 401ks and create ESOPs for employees that are willing to stay with the company for a period of several years. These benefits can help attract more talented employees who are looking for a long term position and are willing to work hard. Incentives of shares can be especially useful in drawing in skilled management.

Debt/Equity Balance

Although businesses do not go public simply to equalize their debt and equity, but it is certainly an advantageous benefit. Banks and investors do not like to see businesses that are financed by a lot of debt, but only a little equity. Going public can restore the equity side of the equation, which can make it easier for businesses to get loans, attract valuable investors, and present an overall stronger proposal.

References

• Reference for Business: Going Public
• Investopedia: What are the advantages and disadvantages for a company going public