As your company grows, the question of whether to go public will eventually arise. This decision ultimately hinges on your organization’s goals and its ability to sustain continued growth. In the end, you’ll want to make the choice that best aligns with your business objectives.
Advantages of Going Public
There are, of course, many advantages to taking things public. Doing so creates a great opportunity for a growing business, and it can help you reach loftier objectives. Among the advantages of going public are the following.
More Opportunities to Raise Capital
First, you’ll have more opportunities to raise capital to fund further growth. With those funds, you’ll have the resources needed to improve your company, expand your offerings, reach more customers, pay off debts, and open yourself up to future opportunities.
Going public also brings on increased publicity. You gain a level of prestige that is recognized by investors across the nation, and that prestige makes it more likely that they’ll purchase shares of your company. In a way, it helps validate your organization as a sound investment.
Liquid Ownership Holdings
Another draw for investors is the liquidity that a publicly traded company provides. If shareholders need to leave your organization for any reason, it’s as simple as selling off their shares. This also provides a good exit strategy for the current owners.
Drawbacks of Going Public
While going public can be advantageous to your company in many ways, it does come with certain burdens and drawbacks. These include the following.
Increased Regulatory Oversight
The first—and often most onerous—drawback is the increased level of scrutiny and regulatory oversight you’ll have to deal with. The SEC has numerous rules and regulations regarding the public trading of securities (such as the Sarbanes-Oxley Act), and you’ll have to make certain you comply with those rules. You will also need to submit certain files to the SEC and register your stocks before you’ll be allowed to sell to investors.
The owners of a company also share liability. That means each shareholder is responsible for the actions of the others within the organization. That necessitates stricter policies and more thorough vigilance over the organization’s activities.
Publicly owned companies also have much less autonomy than private organizations. Each decision needs to be approved by the investors, and providing profit for them is generally the ultimate priority. Companies that either value their independence or have a lower priority on growth may not benefit as much from going public.
Weighing the Options for Your Company
When deciding to go public, you need to weigh the advantages against the potential disadvantages. In addition, everything should be compared to your overall business objectives. Put simply:
- If you prioritize growth or intend to sell your company, going public is often the right course.
- If you need autonomy and prioritize other matters over massive growth, keep it private.
Your ability to comply with federal and state regulations and provide a reliable income source to investors are also important matters to consider. If your growth isn’t predictable and reliable, then you likely won’t make a very enticing investment.
Legal counsel can help in the course of making this decision. For additional guidance on taking your company public, contact one of our attorneys.