Advantages and Disadvantages of Going Public Essay

Advantages and Disadvantages of Going Public - Essay Example Advantages for an organization for going public Although going public is an expensive process but there are several advantages. Some of the most important advantages for going public are as follows: More capital can be raised by a company if it starts floating its share in the market. By floating shares in the market, company can have a better growth rate. People know and recognize more about companies whose shares are in the market rather than firms that are privately owned. Going public is a way to brand and market the company as well. It also builds the brand image of the company and the company becomes more reliable and trustworthy (Glueck , 1980). Because of being a better and more renowned company, a public company is able to attract and retain better human resource which helps in improving productivity level of the company. While acquisitions, shares of the company can be used instead of cash. Debt to equity ratio of the company improves because of going public as the capital raised is included in the equity section rather than liabilities. Debt to equity ratio is one of the ways lenders analyze and assess the risk of the company and it explains the amount of debt the company has in comparison to its liabilities. Organizations can motivate employees by offering them stock options which are considered more valuable than other rewards like cash and bonuses. Disadvantages for an organization for going public Besides the advantages of going public, there are several disadvantages because of which many organizations do not go public and float their shares in the market. The most important disadvantages which restrict an organization from going to public are as follows: Going public is an expensive process and if an organization has other ways or options to raise money then it should go with the alternatives rather than floating shares in the market. There are several fees and costs associated with going public like accounting fees, expense allowance of underw riter, filing fees, cost of travelling, cost of printing and legal fees and all these costs are to be included while analyzing whether the firm would go public or not (Hoch, Kim, Montgomery, and Rossi, 1995). In addition to this, if the management of the company is not aware about the process of going public then it should not indulge in such activities because it is a difficult process and they should go public only when the management is not aware about the whole process and complications involved in it. Information about the company increases and more people know about the organization in comparison to the time when the organization was operating as a privately held company. Customers, suppliers, shareholders, investors, analysts, and other stakeholders of the company tend to focus a lot on the organization and strategies which it has adopted. As the company goes public, it has to follow the requirements of SEC and financial reporting of the company has to be in accordance with t he rules and guidelines provided by SEC (Kaplan, and Atkinson, 1998). Top management or entrepreneurs could feel like as if they have lost the control of the organization and thus it can have an impact on their decision making and productivity. Remuneration and compensation packages paid to the top management of the organization are known to others because public information and everyone would be aware about the salaries of people at the top managerial level. Because of going public, risk of shareholder litigation increases. Many shareholders are