Should My Company “Go Public”?
When your company needs additional capital, “going public” may be the right choice, but to be honest, this is an option for only a tiny fraction of businesses. If your company is in the early stages of development, you are limited to obtaining loans from financial institutions or the Small Business Administration. Another alternative is to raise money by selling securities in transactions that are exempt from the registration process. We examine the alternatives in another section.
But for those businesses which are one-in-an-hundred thousand, there are benefits and new obligations that come from raising capital through a public offering registered with the SEC. While the benefits are attractive, be sure you are ready to assume these new obligations. They do cost a lot of money!
- Your access to capital will increase, since you can contact more potential investors.
- Your company may become more widely known.
- You may obtain financing more easily in the future if investor interest in your company grows enough to sustain a secondary trading market in your securities.
- Controlling shareholders, such as the company’s officers or directors, may have a ready market for their shares, which means that they can more easily sell their interests at retirement, for diversification, or for some other reason.
- Your company may be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses, or other incentives with a known market value.
- The image of your company may be improved.
With additional money and access to money comes greater headaches as well. If your business goes public, you must continue to keep shareholders informed about the company’s business operations, financial condition, and management, all of which includes additional costs and new legal obligations. And you may be liable, both civilly and criminally, if you do not fulfill these new legal obligations.
Also, you will lose some flexibility in managing your company’s affairs, particularly because shareholders and their representatives must now approve your actions.