Initial Public Offering

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Initial Public Offering

By | June 2012
Page 1 of 7
When a company decides to go public it is viewed as no longer been owned by a set of private individuals, but instead, it is viewed as now being owned by those individuals as well as by members of the public (or shareholders). This ownership is acquired by shareholders through the purchase of shares in an Initial Public Offering (IPO) or even after an IPO. “An Initial Public Offering (IPO) may be defined as the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.” The principal participants in the IPO process are the company’s management, board of directors, counsel, independent accountants, and pre-IPO stockholders; the managing underwriters, research analysts, and underwriters’ counsel; and, of course, the SEC just to name a few. A private company may decide to go public in order to raise additional capital to fund its business and or take advantage of an investment opportunity which will not only benefit the company but also its shareholders. There are many sound reasons for private companies wanting to go public. For instance, equity capital obtained from an IPO is considered a permanent form of capital since there is no interest to be paid on the equity, and it is not repayable like debt. Therefore, funds generated by a public offering are considered a relatively safe form of capital for a business. Going public can also allow a company the freedom and flexibility to spend capital as it needs to finance its growth and further development, providing a solid financial base on which to build. Equity capital from an IPO also allows a company to exploit its market opportunities while they are present before competitors are able to seize them. Like any other venture going public is not without its advantages and disadvantages. A few advantages of going public are:...

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