An initial public offering, also known as an IPO, represents the very first sale of stock facilitated by a company to the public. Before the issuing of an initial public offering, we could say that a company is private, as the number of shareholders is usually small, comprising of early investors.
On the other side, the public is representative for everybody else – it is an institutional or individual investor that didn’t play a part in the firm’s foundation. Evidently, until a firm decides to make its stock available to the public, the public doesn’t have the possibility of making investments. Even so, you might approach the owners of a company in this respect, but there’s no such thing as a guarantee, as they don’t have the obligation of selling if they don’t want to.
As a result, this could be one of the reasons why IPO is compatible with a company’s decision of going public.
Why Do Companies Go Public?
The question that naturally follows is: should you go public or not? What should you consider in this respect? The most evident motivation is that going public provides numerous financial opportunities that will most likely facilitate your business growth. There might be several options to choose from, some of which are finding additional private investors, borrowing, or choosing to be acquired by a bigger company. Still, by far, going public seems to be a successful approach to most businesses.
That’s because it allows you to maximize the sums of money your company has at its disposal.
Moving on, going public provides you with many opportunities. You might even benefit from more convenient interest rates when it comes to financing, which can be a major advantage. Furthermore, granted that there is market demand, in the position of a public company, you might aim at issuing more stock. This will make it easier for you to deal with acquisitions and mergers since the stock can be facilitated as part of the deal.
Main Advantages of Initial Public Offerings
In the position of a public company, you can attempt to raise more funds in the form of second offerings. That’s specifically because you have access to the public’s markets via the IPO. At the same time, it’s worth pointing out that numerous companies might attempt to compensate executives or other employees via stock compensation.
As a rule of thumb, the stock is much more attractive to potential employees. This is mainly because the shares will sell easier. On a different note, this might allow you to recruit proficient and more skilled employees that will allow your company to grow over the course of time. The matter of prestige and credibility is also worth outlining.
Final Thoughts
To conclude, we are confident that our brief guide on the topic of initial public offerings has answered at least some of your questions. Should you have other questions, make sure you include them in the designated comment section!