Whether you wish to enter the New York Stock Exchange or some other market, the decision of whether to "go public" is an important one for any business owner. The investment capital that comes with an initial public offering (IPO) can take your business to new heights, but there are additional legal hurdles for businesses that go public.
Between disclosure requirements and additional costs relating to registration, the pros and cons of going public are important for any size company to weigh. Small businesses and startups have even more to consider. Making an initial public offering is a long and expensive process, but there are some rules that work in favor of smaller companies.
The pros of going public
Taking your business public offers many benefits - most importantly, opportunities to access new capital. Many businesses choose to go public so that owners and employees can more easily sell their stock. Plus, becoming a publicly traded entity places your business in a brighter spotlight. That means more publicity, more brand awareness, and hopefully more customers.
Public offerings mean less privacy
Like any growth opportunity, there are downsides to making a public offering. Companies that go public must add SEC reporting requirements to their "to do" list, for example. These reports help current investors and the market understand what is going on at the company.
Compliance with SEC reporting requirements takes time and resources, plus your company's finances are on display. Financial statements and other information will be available to the general population as well as others in your industry.
Emerging growth companies can follow different rules
Organizations with total annual gross revenues below $1.07 billion that have not previously entered the public market are considered "emerging growth companies" by the SEC.
This is good news for startups and other small businesses because, under Section 2(a)(19) of the Securities Act, they do not have to provide as much information in their initial public offering. Emerging growth companies can:
- Provide audited financial statements for two fiscal years, rather than the customary three years
- "Test the waters" with certain investors
- Defer compliance with some accounting procedures
Taking advantage of emerging growth company rules can help keep costs down when you prepare your IPO. An organization filed as an emerging growth company can continue to operate in that category for five years after its IPO.
Consider all your options
As you consider the future of your business, remember the rewards of going public as well as the drawbacks. Enlist the help of a professional who can help you develop a strategy that makes sense for you. The right advice can make all the difference.