Why companies go public through IPO?
Usually it is not possible to buy shares in a private company. A potential investor can approach the owners, but they’re not obliged to sell any shares. However, public companies sell at least a portion of themselves to the public and they also trade on stock exchanges. Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of director and they must report financial information every quarter. Public companies are regulated by governing bodies. The stock is traded in the open market and any investor, who has got money, can invest in them. The CEO and the owner can not prevent an investor from buying stock.
Going public provides an opportunity to raise cash for the companies, while opening many financial doors as well. Public companies can get better rates when they issue debts because of the increased scrutiny involved. A public company can always issue more stock, as long as there is market demand. Consequently, mergers and acquisitions become easier to execute as stock can be issued as part of the deal.
Trading in the open markets also provides liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent. Besides, being on a major stock exchange carries a considerable amount of prestige.
However, there have many instances worldwide of companies coming with IPOs just to make the founders rich. This trend was particularly witnessed during the internet boom. In market talks, this is referred to as an exit strategy, implying there is no desire involved to stick around and create value for shareholders. In these cases, the IPO becomes the end of the road rather than the beginning. After all, an IPO is entirely a sales job and if one can convince people to buy stock in the company, a lot of money can be raised.
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the content posted was good……but it would be more easy to understand if u will provide us with simple example as well………