The term “going public” is also called Initial Public Offering (IPO). It refers to the time a company transitions from being privately held to selling its shares to the public for the very first time.
The main reason for going public is usually capital growth. By selling shares a company gets to tap a wide pool of stock market investors. This helps it get more capital quickly and easily. The increase in capital then results in the company’s ability to further expand is operation.
It is also beneficial to a company because the increase in capital increases liquidity, which is a big factor when trying to obtain bank loans. This means that going public also increases a company’s ability to have easier access to further capital via loans and investors.
Despite the advantages that going public brings, not all companies opt to do this. Disadvantages include:
1. Control issues. Anytime a company gets a new investor, the present owners’ risk of losing control of their own company increases. Going public means an even greater risk, which is why owners should have a sound anti-takeover measure in place before going through with it.
2. Confidentiality issues. Going public means the need to disclose information to shareholders. Those not comfortable sharing either their financial, operational or technological information will definitely not be happy with full disclosure policy that often comes with going public.