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What does Going Public Mean?

Updated on April 8, 2024 , 207 views

When a private firm becomes a publicly traded and owned entity, it is referred to as "going public." Usually, companies go public to generate money with the intention of growing. To become publicly traded, a private firm must either sell its stock on a public exchange or voluntarily provide specific operational or financial details to the public.

Going Public

Private businesses frequently sell shares in an Initial Public Offering (IPO) to become publicly traded.

Going Public Example

To understand this concept better, let's study this example. Before Coal India, Reliance Power was the biggest IPO ever. It was sold between January 15 and January 18 in 2008 and got subscribed almost 70 times. The total amount of its issue was Rs. 11,560 crores. One of the major distinctions about this IPO was that it got subscribed within the few initial minutes of the book-building process.

How do Companies Go Public?

There are several options available when a business decides to go public:

1. Initial Public Offering (IPO)

The most typical method for a company to go public is IPO. Many stringent regulations for businesses are imposed after the stretched process of an IPO. A typical IPO takes six to twelve months to complete.

2. Direct Listing

Companies can go public and generate financing without conducting an IPO using a relatively new technique called a direct listing. A firm can avoid the customary underwriting procedure by going public through a direct listing. Companies like Spotify, Slack, and Coinbase have recently chosen direct listings as their method of going public.

3. Reverse Merger

A reverse merger occurs when a private firm merges with or is purchased by an existing publicly traded corporation to go public. The acquiring firm in a reverse merger is typically a shell business or a Special Purpose Acquisition Company (SPAC). Since the private firm may merge with an existing company rather than starting the full IPO process from scratch, a reverse merger sometimes provides a speedier and less expensive way to go public.

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Advantages and Disadvantages of Going Public

Before you decide to go public, here are some advantages and disadvantages that you must keep in mind:

Advantages of Going Public Disadvantages of Going Public
Enhances liquidity Arduous method of making decisions
Helps in mergers and acquisitions High reporting expenses
Raises a lot of money Escalating initial costs
Gives visibility and credibility Increased Liability
Improves financial situation Takes a lot of time to execute

Alternatives to Going Public

Although going public may be one of the most common methods for businesses to acquire money, it is not the only choice. A business can get the money it needs without exposing itself to public ownership through other channels. Three of the most widely used alternatives are as follows:

1. Reinvestment

As businesses expand, they can put their Earnings back into the company to support that expansion. The founders do not have to worry about losing ownership of their business or incurring debt to expand, which is advantageous.

2. Borrowing

It is another method that businesses employ to raise finance. Companies can borrow money from banks in the same way that a person can. However, businesses can also employ Bonds, a popular method with government organizations. A corporate bond is a type of financial asset that enables businesses to get financing from private investors.

3. Venture Capital

Many businesses rely on venture Capital, a kind of private finance in which investors and venture capital organizations engage in private businesses, sometimes in return for a portion of ownership. Technology companies and start-ups both like venture financing. If the business is further developed, it may also obtain money through a private equity arrangement that includes a combination of loan and stock.

Key Points to Remember

If you are considering going public, there are a few key things you need to know, such as:

  • The process can be lengthy and complex. Going public is not something you can do overnight. It typically takes months (or even years) to prepare for an IPO. You'll need to work with investment banks, lawyers, and accountants to get everything in order
  • You'll be subject to more regulation. Once you're a public company, you'll be required to disclose a lot more information about your business. You'll also be subject to stricter Accounting and financial reporting requirements
  • Your stock price will be volatile. When you go public, your stock will start trading on the open Market. That means its price can go up or down based on investor demand
  • You may have to give up some control of your company and will become answerable to shareholders
  • It's important to understand that going public is not right for every company. If you're not ready for the added scrutiny and regulation, it may not be the best move for your business

Before you decide to go public, be sure to consult with your financial advisor to see if it's the right move for your company.

The Bottom Line

Going public is a major decision for any company. It can be a great way to raise capital and increase visibility for your business. But going public also comes with a lot of regulatory requirements and added scrutiny from investors and the media. Before you take your company public, it's important to understand all of the implications and risks involved.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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