Private companies have the chance to go public by offering stock for the public to purchase on the stock market. This financial decision is called an initial public offering (IPO), but why would a business do something like this? IPOs offer many advantages to a small business.
Raised Capital
The biggest benefit of an IPO is that it’s a fast way to raise capital and get money. Many businesses offer millions of shares for a small cost so that the company can get a lot of capital to fund research, growth, or even pay debts. The amount of shares for a company depends on the amount of equity in the business at the time it chooses to go public. The money gained from selling shares can also be used to acquire other companies. Many IPOs decide to inform potential shareholders what the money will be applied toward to avoid any unnecessary risk.
Increased Market Share
Companies that go public using an IPO gain an increase in publicity. While it isn’t free and can be quite costly, businesses turn stocks into cash from selling their shares publicly—plus, any products or services produced may see an increase in sales. If a company chooses to grow or take over other smaller businesses, the business owner and shareholders may see growth in market share as profit is produced. In the long run, many corporations find it much more profitable because they can still maintain control, although the shareholders must always be kept in mind. In many cases, what’s profitable for shareholders is also beneficial for the business.
New Hires and Retirement
The increased publicity may put the business in view for new talent and professionals that are in the same field. New applicants may see the company for the first time on the stock market, and, if a business uses the money from the IPO to grow, there may be new positions available. Overall, it can give companies the chance to bring in new people that can help the organization succeed.
While offering new employment, it also provides business owners and board members an exit strategy. It’s possible to pass the company to an heir or whomever, but many venture capitalists use IPO to cash in on the success of their business by selling to another, larger corporation.
Easier Business
Going public can be seen as a rite of passage for a company because it then has an easier time trading with other corporations. Additional stockholders may be more likely to invest in a company that’s public because it has to comply with the Securities and Exchange Commission rules and regulations. The SEC ensures that investors are protected from significant loss. The main way that the SEC does this is by requiring businesses to promote disclosure, sharing of market-related information, fair dealing, and protection against fraud.
