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Finance and Initial Public Offerings: What are the issues when deciding whether to go public?

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Initial Public Offering Paper and Presentation

Describe the financing issues that an organization faces when it goes public. Include an example of a company which has had an initial public offering in the past three years to address the following:

- Registration, disclosure and compliance issues

- Cost of issuance

- The impact on ownership control and return

- Source and application of funds

Be sure to support your position using information from the assigned text(s) reading and other sources. Be sure to properly cite all sources.

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Financing Issues a business faces when going public

Why do companies go public? A public offering of stock can differ from $500,000 to over $1 billion. By offering stock for sale to the public a business can way in a substantial source of corporate funding.

Kindly think in the following terms: If a business needs additional capital, it can sell stock (equity) or it can it issue bonds(debt securities). An initial equity offering can bring instantaneous proceeds to a business. These funds may be used for a variety of purposes including; growth and expansion, retiring existing debt, corporate marketing and development, acquisition capital and corporate diversity.

Once public, a business's financing alternatives are increased. A publicly traded business can return to the public markets for additional capital via a bond or convertible bond issue or secondary equity offering. A public status can also provide favorable terms for alternative financing from public and private investors.

In general, public companies have a higher valuation than private enterprises.

Ready funds
To sell the stock of a private company, a stockholder must find another individual that is interested in owning the shares. This is very difficult, especially for minority positions.

Please think of the following: By going public, a business creates a market for its stock in which buyers and sellers participate. In general, stock in a public business is much more liquid than stock in a private enterprise. Liquidity is created for the investors, institutions, founders, owners and venture capital professionals. Investors of the business may be able to buy or sell the stock more readily upon completion of the public offering.

This liquidity can elevate the value of the corporation. You should think of the following: The stock's liquidity is contingent on a variety of factors including, registration rights, lock-up restrictions and holding periods. A public business has greater opportunity to sell shares of stock to investors. Ownership of stock in a public business may help the business's principles to eliminate personal guarantees.

Liquidity can also provide an investor or business owner an exit strategy, portfolio diversity, and flexibility of asset allocation.

Reward
How is stock used to attract employees? Many companies use stock and stock option plans to draw and hold on to talented employees. It is increasingly common to recruit and compensate executives with a combination of salary and stock. Stock in a public business can be issued as a performance based reward or incentive.

Please consider the following: This reward is more desirable if the stock has a public market. Stock can be instrumental in attracting and keeping key personnel. Also, certain tax advantages are a consideration when issuing stock to an employee. Generally, capital gains taxes are lower than ordinary income taxes. Owners and employees may have specific restrictions relating to the liquidity and sale of the stock.

A public offering can fashion a market for the business's stock. This market can result in liquidity and reward for the business's employees. A stock plan for employees demonstrates corporate good will allows employees to become partial owners in the business where they work.

An allocation of ownership or division of equity can lead to increased productivity, morale and loyalty. This type of compensation is a way of connecting an employee's financial future to the business's success.

Esteem
How can a public issue increase reputation? A public offering of stock can help a business increase esteem by creating a perception of stability. A business's founders, co-founders and managers gain an enormous amount of personal esteem from being associated with a client that goes public. Esteem can be very helpful in recruiting key employees and marketing goods and services.

You need to understand this: When sharing ownership with the public, you spread the business's reputation and increase its business opportunities. By selling stock on an exchange your ...

Solution Summary

This solution provides an extensive discussion (2,488 words) of financing issues a business faces when going public and twelve internet references.

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