going public reponse

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I am going to send you 3 papers to respond to. normally I would send two and the instructor’s response but this week I will not send his response I will send another paper. The same procedure follow.

paper 1 dn

Why would a company consider going public? What are some of the advantages and disadvantages?

A company will consider going public in order to raise liquidity or cash by selling a percentage of the owner’s equity to the public by issuing small parts of the company called shares. An added benefit from issuing shares is that they can be used to attract top management candidates through the offer of perks like stock option plans. Another plus from going public benefit is that stocks can be used in merger and acquisition deals as part of the payment. (Koba, 2013)

In addition of the liquidity going public also give a particular company more status or prestige by being listed in big stock exchanges in the market. When cash is collected from the issuance of shares money is usually used to expand the business or to reinvest in the company’s structure, which helps the company to growth bigger rather than staying as a private entity without this liquidity boost.

Initial Public offers help companies to raise capital without having to sell their equity or being force to have another partner to share their profits. In the other hand in order to make the initial public offer public some guidelines and regulations have to be applied to this process.

Going public is an expensive, time-consuming process. A corporation must put its affairs in order and prepare reports and disclosures that comply with U.S. Securities and Exchange Commission regulations concerning initial public offerings. Not only will you have to mobilize your staff to accomplish this work, you will have to hire specialists to take the company through the process, including attorneys, accountants and underwriters. (Master, 2012). In addition

Reference:

Koba, Mark. (2013). Initial Public Offerings, CNB explains. Retrieved from: http://www.cnbc.com/id/47099278

Masters, Terry. (2012).disadvantages of a business going public. Retrieved from: http://smallbusiness.chron.com/disadvantages-busin…

paper 2 pn

Why a company would consider going public? What are some of the advantages and disadvantages?

A Company would consider going public for mainly one important reason. Going public means selling some of a company’s stock to outside investors in an initial public offering (IPO) and then letting the stock trade in public markets. Going public enables a company’s owners to raise capital from a wide variety of outside investors. For example, the babysitting, nanny, and eldercare company Care.com, the performance boat manufacturer Malibu Boats, the financial services company Ally Financial, and the online takeout food ordering portal Grubhub.com all went public in 2014.

Advantages to going public:

  • increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers
  • Permits founders to diversify. As a company grows and becomes more valuable, its founders often have most of their wealth tied up in the company. By selling some of their stock in a public offering, they can diversify their holdings, thereby reducing the riskiness of their personal portfolios.
  • Increases liquidity and allows founders to harvest their wealth. The stock of a private, or closely held, corporation is illiquid. It may be hard for one of the owners who want to sell some shares to find a ready buyer, and even if a buyer is located, there is no established price on which to base the transaction.
  • It will make it easier for the firm to raise capital. The firm would have a difficult time trying to sell stock privately to an investor who was not a family member. Outside investors would be more willing to purchase the stock of a publicly held corporation which must file financial reports with the sec.
  • Establishes a value for the firm. If a company wants to give incentive stock options to key employees, it is useful to know the exact value of those options. Employees much prefer to own stock, or options on stock, that is publicly traded and therefore liquid. Also, when the owner of a privately owned business dies, state and federal tax appraisers must set a value on the company for estate tax purposes. Often these appraisers set a higher value than that of a similar publicly traded company.

Disadvantages to going public:

  • Increases reporting costs. A publicly owned company must file quarterly and annual reports with the SEC and/or various state agencies. These reports can be a costly burden, especially for small firms. In addition, compliance with the Sarbanes-Oxley Act often requires considerable expense and manpower. Public companies are subjected to additional regulations.
  • Increases disclosure requirements. Management may not like the idea of reporting operating data, because these data will then be available to competitors. Similarly, the owners of the company may not want people to know their net worth. But because a publicly owned company must disclose the number of shares its officers, directors, and major stockholders own, it is easy enough for anyone to multiply shares held by price per share to estimate the net worth of the insiders.
  • Increases risk of having an inactive market and/or low price. If the firm is very small and if its shares are not traded frequently, then its stock will not really be liquid and so the market price may not represent the stock’s true value. Security analysts and stockbrokers simply will not follow the stock, because there will not be sufficient trading activity to generate enough brokerage commissions to cover the costs of following it. Managers of publicly-owned corporations have a more difficult time engaging in deals which benefit them personally, such as paying themselves high salaries, hiring family members, and enjoying not-strictly-necessary, but tax-deductible, fringe benefits.
  • Public companies are regulated by the Securities Exchange Act of 1934 in regard to periodic financial reporting, which may be difficult for newer public companies. They must also meet other rules and regulations that are monitored by the Securities and Exchange Commission (SEC). More importantly, especially for smaller companies, is the cost of complying with regulatory requirements can be very high. These costs have only increased with the advent of the Sarbanes-Oxley Act. Some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments and accounting oversight

References

Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (Page 754). South-Western College Pub. Kindle Edition.

Read more: What are the advantages and disadvantages for a company going public? | Investopedia http://www.investopedia.com/ask/answers/06/ipoadva…

paper 3 gyl

A company’s decision to go public can be a very important and exciting venture. It can be an opportunity for growth, funds for research, product development, expansion and even acquisition. I will start by sharing some advantages of going “public.” First, going public means that a company can obtain funds that do not have to be repaid. This helps the financial condition of the company overall and gives them a great boost in equity. One great asset of going public is the ability to sell stock – which can be used to finance other ventures of the business. Going public also gives the company visibility and public light. Shares become marketable, which in turn makes shareholders happy. This is because they are able to diversify their portfolios, thanks to the public companies.

One of the biggest disadvantages is that company has to now get board approval and/or shareholder approval for certain matters. They now have to make sure that their decisions are in the interest of those that are investing in them. Also, when a company goes public, the SEC (Securities and Exchange Commission) requires them to release certain information and financial reports. Now, they have to also abide by regulations as to the validity of the information they release. Surprisingly, it can be costly for companies to go public. When you add up the legal fees, accounting fees, underwriting and etc., it can be a substantial offering and risk.

Brigham, E. F., & Houston, J. F. (2014). Fundamentals of Financial Management (8th ed.). Mason, OH: Thomson/South-Western.

Pros and Cons: Going Public. (2013, June 15). Retrieved February 14, 2017, from http://smallbusiness.findlaw.com/business-finances…

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