What are the Advanatges and disadvanatges of a public limited company?

Question

What are the Advanatges and disadvanatges of a public limited company?

Answer 1

A public company has several advantages. It is able to raise funds and capital through the sale of its securities. This is the reason why public corporations are so important, historically; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. In addition to the ease of raising capital, public companies may issue their securities as compensation for those that provide services to the company, such as their directors, officers and employees. While private companies may also issue their securities as compensation for services, the recipent of those securities often have difficulty selling those securities on the open market. Securities from a public company, typically have an established fair market value at any given time as determined by the price the security is sold for on the stock exchange where the security is traded.

Unfortunately one of the major disadvantages of the public process is the initial cost. Even for a small traditional public offering (about $10 million), the out-of-pocket fees can range from $200,000 to $600,000. These fees vary depending on which market you choose to go public on, and the course of action you choose to get there. If the contracted underwriters are unable to raise the funds anticipated, or if at the last minute, the IPO is cancelled, those fees must be written off.

Additional costs will follow once the company itself is public. The ongoing costs of compliance, i.e. fulfilling the regulatory requirements, investor relations, stockholder meetings, and other similar duties that are required can range from $20,000 to more than $200,000. In addition to this cost, you also must consider the costs of management personnel’s time and additional personnel costs.

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