Advantages And Disadvantages Of Ipo

Def of IPO :

Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.

Def of Public Placement :

A public placement is where a security offered to the whole market rather than to selected investors. It is usually listed on a stock exchange in relatively small denominations. The costs to the issuer are usually higher than for a private placement but there may be benefits in

In addition, the capital does not have to be repaid and does not involve an interest charge. The only reward that IPO investors seek is an appreciation of their investment and possibly dividends. Besides the immediate infusion of capital provided by an IPO, a small business that goes public may also find it easier to obtain capital for future needs through new stock offerings or public debt offerings. A related advantage of an IPO is that it provides the small business's founders and venture capitalists with an opportunity to cash out on their early investment. Those shares of equity can be sold as part of the IPO, in a special offering, or on the open market some time after the IPO. However, it is important to avoid the perception that the owners are seeking to bail out of a sinking ship, or the IPO is unlikely to be a

Experts note that a company's management is likely to be occupied with little else during the entire IPO process, which may last as long as two years. The small business owner and other top managers must prepare registration statements for the SEC, consult with investment bankers, attorneys, and accountants, and take part in the personal marketing of the stock. Many people find this to be an exhaustive process and would prefer to simply run their company.

Another disadvantage is that an IPO is extremely expensive. In fact, it is not unusual for a small business to pay between $50,000 and $250,000 to prepare and publicize an offering. In his article for The Portable MBA in Finance and Accounting, Paul G. Joubert noted that a small business owner should not be surprised if the cost of an IPO claims between 15 and 20 percent of the proceeds of the sale of stock. Some of the major costs include the lead underwriter's commission; out-of-pocket expenses for legal services, accounting services, printing costs, and the personal marketing "road show" by managers; .02 percent filing costs with the SEC; fees for public relations to bolster the company's image; plus ongoing legal, accounting, filing, and mailing expenses. Despite such expense, it is always possible that an unforeseen problem will derail the IPO before the sale of stock takes place. Even when the sale does take place, most underwriters offer