There are many types of companies which have been given under the Companies Act of 2013. Some of them include Private Limited Company registration, Public Limited Company, LLP, OPC etc. Any business starts with registering private corporations because it’s hard to maintain and register a Public Limited Company. Also it is not at all feasible to register a public company in the starting of a business. Once the business gets established then a company decides to go public. Both the organization and the business owner are going to get profit from it.
What is a Public Limited Company?
A Public Limited Company is a corporate entity that has been registered under the Companies Act of 2013 and has at least seven directors. The act of registering a Public Limited Company confers advantages to those seeking substantial investment for their enterprises. There have been claims that these businesses give the public access to their shares. These businesses raise money in this way. When any company decides to go public it needs to fulfill all the criterias. It’s not easy to manage a Public Limited Company. Hence before any company decides to go public, it should first do the market research about the same.
Why Should a Company Decides to Go Public?
A company decides to go public because of the following reasons:
Capital Expansion
If the company thinks to expand and want capital for the same then it can convert the private corporation into a public one. It will help the private corporation to get funds from the public. Going public allows companies to sell shares to the public, raising a lot of money quickly, which can be used to grow or expand the business. In short, for the expansion of business one can convert the private corporation into a public one.
Enhanced Visibility
Once the company got converted from any private corporation to public it got recognized on the stock exchange. Being listed on the stock exchange brings a company more attention and publicity. After listing on the stock exchange, the company potentially attracts more customers and investors. Trustworthiness of the company increased, which helps in increasing the reliability and credibility of the business.
Liquidity for Investors
Public companies provide an avenue for early investors, employees, and founders to sell their shares easily, turning their holdings into cash. Because of this reason people invest in such companies. Also when the company becomes public its trustworthiness gets increased which ultimately helps the company attract more and more customers and investors.
Employee Incentives
When a company decides to go public, it will benefit its staff members as well. Employee grants or stock options are available to public corporations, which is a valuable addition to their pay.Such companies can easily get good employees because people prefer to work in such companies. Employee incentives are very high and noticeable in such companies.
Acquisition and Mergers
Merger and acquisition is one of the important terms in the business world. Sometimes because of this company decides to go public. When two companies get converted into one that is called a merger. It can be done by purchasing the company . On the other hand when one company acquires the other it is called acquisition. Both merger and acquisition are possible with the Public Limited Companies. A publicly traded company can use its shares as a currency to acquire other companies or merge with other firms.
Listing of Securities: Why does a Company go for IPO?
When a firm lists its securities, it means that its shares are available for purchase and selling on a stock exchange. Investors can buy and sell the company’s shares as soon as they are listed on the stock exchange. Acquiring shares allows one to become a shareholder in the business. Now you are eligible to get profit on that amount of shares.
Because of the number of reasons a company can opt for the IPO. Some of the key reasons behind Initial Public Offering are included but nor limited to get funds for the company, for the expansion of the business, create goodwill in the market, in order to enhance the visibility, credibility and reliability of the business etc.
How Do Companies Listed in the Stock Exchange?
Through Initial Public Offering any company can list oneself on the stock exchange. But again it’s not easy to do the same. It requires a lot of permissions from the various departments. This is because it is a very big decision as well as the public and their money is going to involve the same. Some of the key things which one must know about the IPO and the companies listing in the stock market are mentioned below:
- Companies must prepare a listing agreement
- Permission must be obtained in order to use the name of the BSE to refer to an issuer in a prospectus of the company
- Letter of application must be submitted
- Securities allotment is a crucial point
- Must obtain trading permission
- 1% security requirement is there
Advantages of Going Public
Some of the key advantages of going public are:
- Raise the funds for the company
- It is an exit route for existing investors
- Liquidity and marketability of share
- Increase trust of stakeholders in the company
- Possibility of takeover increases
- Employees motivation through ESOPs got increases
- Enhanced visibility
Disadvantages of Going Public
Some of the key disadvantages of going public are:
- Huge upfront cost is required when a company decides to go public
- Loss of autonomous control over the company
- Increases compliance requirement
- Responsibilities got doubled
- Business structure becomes giant
Conclusion
Before any company decides to go public, it must calculate all the negative as well as positive aspects of the same. There are a number of formalities involved in the process. No mistake can be accepted. Sometimes small mistakes cause big losses. Hence one must be very cautious while going public. If one thinks that he or she himself can do the formalities of the IPO, then he or she is on the wrong path. It is free advice to hire a professional to do all the things regarding the IPO. This is because it needs to comply with various laws and regulations with only a professional having good experience and helping you out. If you as a company decides to go public, but are confused regarding the things, you can contact us.
