Going Public (IPO) Pros and Cons
Going Public, or taking your company public through the IPO process, has many advantages and can be a lucrative step for your business. In order to determine whether or not to Go Public with your company, one should first weigh the pros and cons of going public, or doing a an IPO, a Reverse Merger or or acquiring a Public Shell.
- Access to Capital - Going public can grant a company access to capital in lieu of debit through selling shares. In private financing, Venture Capital or Angel Investments, oftentimes the investor is going to want some degree of control of the business, or at least a voting chair. A company's debt-to-equity ratio will usually improve after going public, which tends to result in more favorable financing arrangements.
- Utilizing Equity - Public companies can offer stock as an incentive, bonus, or as part of an employment contract. This is sometimes used to retain key people before the Going Public process. It is also often used as payment in employee profit-sharing arrangements. Additionally, Equity can be used to purchase or acquire other businesses.
- Stock Value Appreciation - If your public company performs well, the value its stock tends to increase. This is one of the foremost reasons to Go Public, the future value of the company stock.
- Retain Control - In most cases, Venture Capital investors will want to appoint someone on their team as a member of the board of directors. Moreover, they usually want to have more than half of the ownership and/or voting rights. Through the public equities market, or going public, you can maintain control.
- Liquid Equity - When you take your company public, your shares can be used as or turned into cash, for paying debts, acquiring another business, etc.
- Media Spotlight - Public companies have public appeal. Part of that is that the media and people in general tend talk about them more. Thus, your stock will often be looked at by millions of people; investors, investment analysts and and institutions.
- Control Risk - If you ever feel that your shares will drop in price, you could sell them. Naturally, proper public disclosures are required. Publicly traded shares are much easier to sell quickly than are privately held ones.
Cons - Tighter Formalities
Unless you are familiar with the registration (Going Public - IPO) process, you are going to need help. This means that you will incur some legal, accounting, underwriting, travel and printing costs to create your offering. Some or all of these costs can be borne by the investors. It is recommended that you seek the help of qualified and experienced professionals, such as the members of our network, who will guide you through the entire process of taking your company public.
Increase in Filing and Reporting Requirements - Sabarnes-Oxley Compliance
What started out as an attempt to protect investors in 2002, the Sabarnes-Oxley Act requires full disclosure so that investors can make informed decisions. These are stout requirements and most professionals would agree that they are strict. What this means is by Going Public, you increase your reporting and disclosure formalities. There are some costs associated with remaining compliant with Sabarnes-Oxley. So, it is prudent to weigh your willingness to comply with these rules compared to your desire to experience the benefits of having a publicly traded company.
Short Selling, Pump and Dump, "Short and Distort" Activity - Stock Price Manipulation
Basically, this referrers to unethical trading activity and practices. After Going Public, your stock prices may be sensitive to trading activity and there are people who know how to manipulate a share price, without even purchasing stocks. There is an emerging fashion among investors and online traders where abuses that take place can significantly effect your short-term stock performance. Essentially if your stock price were to be devalued, a purchaser could pick up more stock for the same money... and in reverse, a company's financial performance can be inflated to increase stock prices where a person can sell them for a higher price. The short selling of stocks is a problem and can have a negative effect on a company that has gone public. There are some strategic solutions to stock manipulation that our network has employed very effectively in the past.
Again, tese activities tend to effect short-term stock price. The stock price over the long-term, however, is mainly influenced by the growth of the profits generated by your company.