Advantages

Access to Capital

• By offering stock for sale to the public, a company can access a substantial source of corporate funding.
• Through a public offering, founders suffer less dilution when raising capital. Once public, a company's financing alternatives are increased.
• A publicly traded company can return to the public markets for additional capital via a bond or convertible bond issue or secondary equity offering.
• In general, public companies have a higher valuation than private enterprises.

Liquidity

• By going public, a company creates a public market for its stock.
• This liquidity can elevate the value of the corporation. The stock's liquidity is contingent on a variety of factors including registration rights, lock-up restrictions and holding periods.
• Liquidity can also provide an investor or company owner an exit strategy, portfolio diversity and flexibility of asset allocation.

Compensation

• Many companies use stock and stock option plans to attract and retain talented employees. This reward could be deemed desirable if the stock has a public market.
• Owners and employees may have specific restrictions relating to the liquidity and sale of the stock. A public offering can create a market for the company's stock.
• A stock plan for employees demonstrates corporate good will and allows employees to become partial owners in the company where they work.
• An allocation of ownership or division of equity can lead to increased productivity, morale and loyalty.

Publicity

• A public offering of stock can generate prestige, publicity and visibility, all of which is effective when marketing your company.
• Public companies are more likely to receive the attention of major newspapers, magazines and periodicals than a private enterprise.
• The proper use of press releases, interviews or news stories can increase investor awareness, shareholder value and demand for the stock.
• The publicity received from a public offering encourages new business development and strategic alliances.

Exit Strategy

• One of the important benefits of a public offering is the fact that the company's stock eventually becomes liquid, offering reward and financial freedom for the founders and employees.
• Officers, directors and controlling shareholders may have a ready market for their shares, which means that they can sell their interest at retirement, for diversification or for other reasons.

Disadvantages >