What is flotation?
Going public is the process of turning a private company into a public company by issuing shares that are available for purchase by the public. Instead of using retained earnings to fund new projects or expansions, it allows companies to obtain financing from outside. The term “listed” is commonly used in the UK, while the term “listed” is more widely used in the US.
- Going public, also known as “going public,” is the process of turning a private company into a public company by issuing shares that are available for purchase by the public.
- While going public provides companies with a new source of capital, the additional costs associated with issuing public shares must be considered when considering a move from a private company to a public company.
- Companies in mature growth stages may decide to go public for a variety of reasons, including expansion, inventory, R&D, and new equipment.
Learn about flotation
Going public requires careful consideration of timing, corporate structure, the company’s ability to withstand public scrutiny, increased regulatory compliance costs, and the time it takes to execute a listing and attract new investors. While going public provides access to a new source of capital, the additional costs associated with issuing new shares must be considered when considering switching from a private company to a public company.
Companies in mature growth stages may need additional capital for a variety of reasons, including expansion, inventory, R&D, and new equipment. For this reason, the time and money cost of becoming a public company is generally considered worthwhile.
When a company decides to go public, they usually hire an investment bank as the underwriter. Underwriting investment banks typically lead the process of conducting an IPO and help companies determine the amount of money they seek to raise from public market offerings.
The investment bank also assists in meeting the documentation requirements to become a public company. The bank will develop an investment prospectus and will market the company’s products on roadshows ahead of its initial stock offering. A roadshow is a pitch to potential investors by underwriters and the executive management team of a soon-to-be-public company. Measuring demand during the roadshow is an important step in determining the final IPO share price and the final number of shares available for issuance.
Advantages and disadvantages of flotation
When considering going public as a way to raise capital, companies may also seek other sources of private funding before deciding to become a public company. These alternative funding sources may include small business loans, equity crowdfunding, investment from angel investors or venture capitalists. However, companies still incur legal fees and additional costs in transaction structuring and accounting when seeking additional private funding.
Many private companies choose to accept private funding in order to reduce transparency requirements. Private companies may also want to keep private financing due to the high costs associated with restructuring and initial public offerings (IPOs).