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Why Do Companies Go Public

Most of the businesses go public when they want to obtain some additional resources to finance their activities and projects. Additionally, if you have some innovative and potentially profitable business initiative, but you lack the resources to realize it going public is one of the possibilities you can consider. In this way you will gain money to acquire the necessary equipment and other factors you need for the execution of the business.

How Going Public Works

To go public means that you have to list the company on a stock exchange and offer stock to the public. Known as initial public offering, the money you get from the stock sale will be used for the financing purposes you target. You will have to pay commission to the investment bankers, whose services you have used to execute the offering.

The investors, who purchase shares of the company, are referred to as shareholders. They have the right to elect a Board of Directors. The latter will be responsible for the management of the business. Most founders of companies tend to keep a majority stake for themselves in order to keep a control over the major issues of the company.

Going Public Alternatives

Of course, there are some other sources of money when the increase in the size of the business requires the investment of additional resources.

One thing you could do is to borrow money from a bank or other entities. However this option may create some problems. First of all no one will lend money without whatsoever guarantee that the money will be repaid. The bank will require the presentation of a business plan that is consistent and viable enough to show the reliability of the business. Additionally, foreclose will be issued if you are not able to make the necessary payments on time. You should also consider the negative effects of interest that may be experienced over your cash. As a result you will have less money for your business activities.

Another option is to attract people who are willing and able to invest money in your business. What will they get? You will award their trust in the viability of your business by a piece of the company. They will become owners of it. As a result this will give them voice on the company's issues.

A third option is to look for firms and individuals that are specialized in investing in other businesses, which is commonly referred to as venture capital.

So, after managing to find the necessary resources to finance the business, it is up to the entrepreneur to develop it to its full potential.

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