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Reasons for a private firm going public.

Explain why a private firm would go public.

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Reasons for going public include the following. Note that, generally, several of these reasons will be important at the time of the IPO.

? To raise additional capital. Original investors may be tapped out, or they may not want to put additional funds into the business for diversification reasons. Thus, the company needs to bring in outside funds, and an IPO is the most efficient way of doing so.
? Founding stockholders want liquidity, which a public market would provide.
? Founding stockholders want to diversify. They can sell some shares during or after an IPO.
? Many companies use stock options as part of their compensation plans. Employees with options, like founding stockholders, want liquidity and the opportunity to diversify their holdings.
? To establish a market price, which is useful for incentive employee option programs, for mergers, for estate tax ...

Solution Summary

This posting explains the reasons as to why a private firm would go public.