Publicly listing a company: the advantages and disadvantages

A company’s reasons for deciding to go public often include the ability to gain access to the capital markets for financial expansion and acquisitions. Typically, they have spent many years reinvesting profits and guaranteeing loans, and rather than sell out, they want to stay with the company and be a part of its future growth.

Even if your business is suited to floating, it may not be the right option for you. There are a number of key pros and cons to weigh:

Advantage:

o You gain access to new capital to develop the business

o A float makes it easier for you and other investors to make your investment

o May offer employees additional incentives by granting stock options

o Being a public company can provide customers and suppliers with additional reinsurance

o Your business can gain a higher public profile, which can be good for business

o Having your own shares traded gives you greater potential to acquire other businesses as you can offer shares in addition to cash

o Personal guarantees from directors are not usually required for loans.

Disadvantages:

o Your business may become vulnerable to market fluctuations, which are beyond your control.

o If market conditions change during the float process, you may need to exit the float.

o Flotation costs can be substantial and there are also ongoing costs, such as higher professional fees.

o You must take into account the interests of the shareholders in running the company, which may differ from your own objectives.

o You may have to relinquish some management control of the business and ultimately there is a risk that the company will be taken over.

o Public companies must comply with a wide range of additional regulatory requirements and adhere to accepted standards of corporate governance.

o Managers could be distracted from running the business due to the demands of the flotation process and dealing with investors afterward.

It usually takes 6 months to publicly list a company on the stock exchange, although the time period can vary from 3 months to 2 years. You’ll need a variety of professional advisors to help you with the legal, financial, accounting and valuation aspects of going public, as well as preparing prospects, underwriting shares and assisting with IPO plans.