Initial Public Offerings & the Securities Act of 1933> Registration of Securities> Registration Statement Filing

Whether a company should “go public” by issuing and selling its shares to the public is a question that may merit periodic evaluation by new or private companies. Going public has positive and negative consequences that should be evaluated regardless of current trends.

The most apparent benefit of going public is to obtain greater capital for the company. The company’s stock is presented to more potential investors, and the purchase and sale of the stock becomes more efficient. There are additional benefits from going public:

Public sale of the company’s stock increases awareness of the company and its products and may thereby increase the company’s sales and profits;

Future financing for the company may become more available as investor interest in the company increases;

A market for shares of controlling shareholders, including company officers and directors, is established, and those controlling shareholders are able to sell their shares more easily at retirement or when cash is needed;

The ability to offer stock options or other incentives tied to the company’s stock with a defined market value may allow the company to hire and retain better company employees;

The image of the company may be improved among investors and the public; and

Valuation of the company and its assets and the company’s market presence are more easily established in the event that the company seeks to use its stock in the acquisition of stock or assets of other companies.

New Obligations
On the other hand, going public creates new obligations for the company:

The public company has greater disclosure obligations and greater obligations under federal and state securities laws and regulations;

The public company and its officers and directors also may have greater potential liabilities arising from any failure to meet legal obligations;

Flexibility in managing company affairs may be lessened, and obtaining shareholder approval for company actions will require compliance with regulatory requirements such as providing proxy statements with independently audited financial statements;

Financial reporting requirements may become more stringent;

A public offering is a significant company expense, and a public offering normally will take at least a year to accomplish;

The additional obligations required of officers and directors of a public company may distract the company from its focus on its business; and

Going public may raise more concern over short-term results and make achievement of long-range plans more difficult.

While the pros and cons of going public should be considered periodically by private companies, public companies similarly may wish to consider the pros and cons of going private.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.