Topic: How To Invest

Q: I’ve noticed lots of IPOs lately. What are the barriers that prevent a private company from going public? Is it generally a goal of private companies to go public?

Article Excerpt

A: The decision to go public or remain private depends on a number of factors that a company’s owners must evaluate from the unique perspective of the firm. The main reason that a company sells shares to the public through an initial public offering (IPO) is to raise capital from a large number of investors. This capital could be used for any number of things—from funding growth by acquisition and the expansion of existing operations to funding research and paying down debt. Share capital is also generally cheaper than debt financing, especially for junior companies that have to pay high interest rates on loans. IPOs can also generate publicity for a company, and draw attention to its products or services. This can lead to expanded market share. Publicly traded shares can also provide a more-liquid form of executive and employee compensation. Share offerings are often used to provide company founders with an exit strategy, letting them cash in some or all of their…