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Initial Public Offerings (IPO)

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Why Do Companies Go Public?

Companies raising money through IPO are reckoned as going public (since earlier, the company was privately owned by a group of individuals and now the shareholding pattern will change). Smaller and newly incorporated companies largely go for IPOs to raise funds for expansion. On the other hand, large privately owned companies intend to become publicly traded through IPO. Going public is a strategic decision which provides a long term solution to capital raising and business development. Further, capital raised through IPO neither involves any interest charge nor has to be repaid (last in seniority of claims when the company liquidates). 

Advantages of going public:

  • Money raised through IPOs can be utilized by the company either for growth, expansion, acquisition, diversification, pay off debts or even to meet its working capital requirements.
  • Increasing liquidity for equity holders
  • International credibility and visibility
  • Increase in market share
  • Enabling cheaper access to capital
  • Strengthening or Diversifying equity base
  • Employee Motivation and retention through stock options

So, we have learned the several advantages for companies making a public issue. But do you know there are even different types of public issues? Let us discuss them in the next section. 

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