The advantages and reasons to list a company
The main reasons for companies to go public are as follows:
- Early-stage investors need liquidity of funds: Early-stage investors such as venture capital and private equity hope to get back many years of remuneration and exit, and then invest their funds in more efficient places.
- Make corporate valuations public and obtain reasonable fair value: The valuation of a company before it goes public can only be determined unilaterally by venture capital, private equity, or banks, which is not very fair, because they generally value the unlisted company from the perspective of their own interests. After the public offering, the value of the company is directly linked to the company’s performance, and the market investment public determines the company’s fair value.
- Raise working capital
- Initial public offering (IPO) to raise working capital from the public: IPO allows companies to obtain large sums of capital at one time, repay debts or raise funds needed to continue operations.
- It is conducive to the follow-up financing of enterprises: including corporate bonds and new stock issuance; these are all qualifications that can only be obtained after public listing.
- Loans are relatively open, transparent, efficient, and cost-effective. On the contrary, when it is not listed, loans from banks, venture capital, and private equity are very expensive and do not need to be disclosed.
- Increase the visibility of the company: Listed companies can use this to differentiate themselves from other small or unlisted competitors and obtain legal and ready-made advantages – for example, it is easier to hire better talents, increase public trust, and enable the company’s operations and products sale of services is easier.
- Increase the transparency of the company: because all listed companies must accept the supervision of the local securities management agency for the listing, the operation of the company must comply with laws and regulations, and the management team must also accept many restrictions.
- Disperse shareholders and increase the number of shareholders: By introducing more outsiders and the general public as shareholders, various decision-making malpractices or black-box operations caused by a small number of people controlling the company or the board of directors can be avoided.
- It is conducive to subsequent transactions, mergers and acquisitions, or the sale of assets of enterprises, and increases bargaining chips.
- Avoid malicious mergers and acquisitions: After listing, in addition to increasing the number of shareholders, it is also possible to strategically adopt the “Poison Pills clause” to greatly increase the difficulty of mergers and acquisitions.
Disadvantages of listing
Of course, there are many shortcomings of companies going public. The following are the shortcomings of common corporate listings:
- The cost of listing is high: including the initial public offering (IPO) that requires a huge investment of time and resources, and the cost of manpower, resources, money, and time spent on a fixed annual basis after the listing.
- Companies must disclose key financial and operational information: This will make it easier for competitors to openly snoop on business secrets and draw up business plans. If the competitor is an unlisted company, it will obviously cause unequal footholds in competition.
- Make it more expensive to obtain a controlling interest in a company: In order to maintain or want to obtain a controlling right in a company, it is necessary to spend a higher price than the market price to obtain sufficient controlling rights.
- Insiders’ equity transactions are restricted: In addition to the stock transactions of the management team and decision-makers, they must be made public, and they will also be subject to various (exit time, quantity, etc.) restrictions.
- Every move of the management team is subject to legal constraints and investor supervision, reducing the degree of freedom.
- The rise and fall of the stock price after the listing of the company has made the company’s operations short-sighted and unwilling to make long-term investments, which is detrimental to the company’s long-term development.
The advantages of listing outweigh the disadvantages
However, compared with the pros and cons, the pros of going public still far outweigh the cons. Therefore, most well-known and important companies will choose to go public.
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