Advantage & disadvantage of IPO?

Answer 1

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An IPO often represents an attractive financing vehicle for growing companies. Before initiating a public offering, you should consider how your company's existence will change if it is public. What does an initial public offering get you? What are the costs? Outlined below are the typical advantages and disadvantages of being a public company.
Advantages

Financial New equity may be available in an amount greater than, or at a cost less than, private financings.
More funds available for expansion, working capital, debt repayment, acquisitions of business or technology and other purposes.

Potentially higher valuation than is available in a private offering.

Increased net worth of the company, facilitating future debt and equity financings.

Increased future access to public markets.

Greater ability to accomplish stock-for-stock acquisitions.


Public Image Increased publicity and attention from the investment community.
Heightened visibility may provide a competitive advantage over privately held competitors.

Increased ability to attract and retain employees through use of equity incentives such as stock option and stock purchase plans.

Employee pride in company may increase.


Liquidity An IPO may include selling shareholders, although resales by early investors often is viewed as an attempt by existing shareholders to "bail out" and therefore is discouraged.
The public market for stock and availability of Rule 144 may allow existing shareholders to liquidate some or all of their holdings in the aftermarket. Underwriters may, however, require existing shareholders to agree not to sell their shares for a specified period after the offering (typically 180 days).


Disadvantages

Dilution/
Control The current shareholders' percentage ownership of the company will be diluted in a public offering.
Control of the company may shift and the company could face an attempted unfriendly takeover. The market may view certain antitakeover devices as unacceptable in an initial public offering.

Two outside directors are required if stock is to be listed on the Nasdaq National Market or the major exchanges.

Earnings per share will be diluted.


Disclosure The company will become subject to periodic reporting and certain other requirements of the Securities Exchange Act of 1934 (the "Exchange Act").
SEC financial statement disclosure and audit requirements will apply.

Stock exchanges and Nasdaq will require public disclosure of significant events.

The offering prospectus and SEC filings will reveal information about the company that would not otherwise be available, giving competitors potential advantages.

The company and its officers will enter a "fish bowl" existence. Significant corporate action, including executive compensation, will be subject to scrutiny and criticism by employees, shareholders, the public, the investment community and regulators.


Expense Underwriters' discounts and commission and offering expenses, including legal and accounting fees, printing costs, transfer agent fees, stock exchange listing fees and blue sky expenses that often exceed $500,000 for an average-sized offering of between $15 million and $30 million, reduce the net proceeds of the offering. Offering-related expenses are not, however, charged against income.
Compliance with SEC reporting requirements will increase significantly the company's general and administrative costs.

Management will spend significant time in public relations and in informing the investment community about the company and its recent developments.

If the offering is not consummated, the company may have to expense outlays incurred prior to termination of the offering. Such outlays may be substantial, depending on when the decision to terminate is made.


Market Pressures Marketplace pressure may cause the company to focus too much on short-term results to maintain stock prices, forgoing risks necessary for future success.
Public shareholders may demand dividends, even though management believes reinvestment of earnings is better.


Restrictions on Management and Major Shareholders Directors, officers and 10% shareholders will be subject (after registration under the Exchange Act) to the short-swing profit rules of Section 16(b) of the Exchange Act.
The company may not be able to act as quickly as it could when it was private because of the need (upon registration under the Exchange Act) to comply with SEC proxy rules when obtaining shareholder votes.

Insiders and others are subject to civil and criminal liability if they trade company stock on the basis of material nonpublic information.

Management must exercise extreme caution in dealings with the investment community to ensure no selective disclosure of material nonpublic information.


Other Factors The public market for new securities can be fickle. An understanding of the "window" of opportunity (status of the market for IPOs, and whether the market will be receptive when the company's offering is ready) is critical.
Urgency of the need for additional funds and the availability and cost of alternative sources of financing.

Going public may require organizational structure change--e.g., from a partnership to a corporation.

For an offering that does not meet the listing requirements for the Nasdaq National Market or the major stock exchanges, qualification in certain states may be difficult or impossible, or may require the imposition of unacceptable restraints on the company or its shareholders.



An IPO often represents an attractive financing vehicle for growing companies. Before initiating a public offering, you should consider how your company's existence will change if it is public. What does an initial public offering get you? What are the costs? Outlined below are the typical advantages and disadvantages of being a public company.

Answer 2

Advantages Of Ipo

Answer 3

ipo means a new company is giving its shares.they are charging premium upon the face value nd then after distrbuting the shares the share comes into the stocks....its nice for a newcomer 2 invest in ipo's coz they hav minimum risk ...if ipo's are oversubscribed they usually enter in the market greater than the premium paid...for eg the recent ipo parswanath has face value of 10 premium of 350 (i don't remember xactly coz ma father had invested)it introduced in the market at 550

Answer 4

Advantage: founders get money -- sometimes, lots. Disadvantage: registration, SEC, Sarbanes-Oxley, possible loss of control.

Answer 5

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