Initial Public Offering (IPO) of a private company transforms it into a publicly traded and owned entity. Businesses usually go public to raise capital in order to expand; venture capitalists may use IPOs as an exit strategy, or a way to get out of a company they have invested in.
Contacting an investment bank and making decisions about the number and price of shares to be issued are the first steps in the IPO process. Underwriting, or becoming the owner of the shares and taking legal responsibility for them, is a task that investment banks take on. The underwriter’s goal is to sell the shares to the public for a higher price than the company’s
One of the benefits of going public is that public companies often trade for one to ten times their private counterparts of similar size and type. Because it has better and more accessible options for raising capital, a public company has more negotiating power with both individual and institutional investors. Because stock can be easily sold on the open market, public companies provide investors with a quick “exit strategy.” The liquidity factor of a public company is appealing to investors.
Negative aspects – Short-term growth is hampered, costs rise, management and trading are subjected to more restrictions, public disclosure is mandated, and former business owners lose control of decision-making
Taking a company public is the ultimate dream and measure of success for some entrepreneurs (usually because there is a large payout). However, before an IPO can even be considered, a company must meet the underwriters’ requirements. Here are some characteristics that may qualify a business for an initial public offering:
So, if you’re considering forming a publicly traded corporation or taking your LLC public, we can assist you.
