THERE ARE MANY ADVANTAGES.
Raising Capital and finding investors.
Public status is a great benefit to finding investors. In today’s marketplace, investors are extremely reluctant to assume the long term risk of investing in a private entity. They want quick liquidity, with the ability to sell their investment when they want, and a ready market to resell their investments. This can only be accomplished if there is an active public market for the stock they buy. Also the success of subsequent offerings to raise more money is often enhanced when a stock has market makers and is actively trading. A prerequisite at this stage is a well-conceived business plan, supporting a strong management team, sound marketing plans and a product or service that has broad appeal.
Liquidity for Shareholders
Founders, management and investors want an exit strategy for their investments. Only two routes exist: the trade or strategic sales of the company, or a listing of the company' s stock on a public stock market. The public market listing answers the need most effectively and
makes your company more attractive to investors.
Second Currency for Acquisitions.
If your company is interested in growing by acquiring other companies, then these acquisitions can be made by using your publicly traded stock as a currency to pay for the acquisition and preserve more cash for working capital requirements. In addition, in todays economic climate, it is extremely difficult to find financing to fund acquisitions, so a liquid stock offers an attractive alternative to pay the seller of the company.
Attract and Motivate Key People
Publicly traded stock options can be used as a powerful form of incentive as compensation for key employees, directors and consultants. Just think how many secretaries at Microsoft became millionaires !
Credit Standing and Credibility
Generally, public companies are considered better credit risks. The visibility and transparency they attain is vital in the marketplace and for obtaining credit. Also it can eliminate the requirement for personal guarantees of corporate debt by owner/managers.
Tax Planning
Holders of stock in a publicly traded company have the opportunity to determine when to sell their stock and in what denominations. They can structure orderly liquidations of their stock when they are ready to recognise capital gains losses. Compare this to the owner of a private company whose only exit is the sale of the company, with the resultant difficulties in potential tax penalties.
Estate Planning and Charitable giving
The opportunity to give public company stock to an heir is a powerful tool, especially if that stock will appreciate in value over time.
Greater Valuation
Generally, public companies are given much higher valuations than comparable privately held companies. This is partly a reflection of the liquidity of a company' s stock and its comparison to other companies in its sector and overall market conditions. If investors are confident that they can buy and sell stock when they want, then they are willing to pay more for that stock. This is simple investor sentiment and economics.
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