{"id":4456,"date":"2016-04-04T10:47:30","date_gmt":"2016-04-04T15:47:30","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/business-finances\/pros-and-cons-going-public.html"},"modified":"2024-06-06T04:17:49","modified_gmt":"2024-06-06T09:17:49","slug":"pros-and-cons-going-public","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/business-finances\/pros-and-cons-going-public.html","title":{"rendered":"Pros and Cons: Going Public"},"content":{"rendered":"\n<div class=\"fl-sectionWithSidebar fl-container fl-flex fl-flex-wrap fl-gap30  wp-container-core-columns-is-layout-9d6595d7 fl-sectionWithSidebar fl-container fl-flex fl-flex-wrap fl-gap30\">\n    \n    <div class=\"fl-section-main fl-page-articles fl-section-main fl-section-main-full-width\">\n        <h1 class=\"fl-no-margin-top\">Pros and Cons: Going Public<\/h1>\n<section class=\"fl-gutenberg-byline\">\n    <div class=\"fl-gutenberg-byline-content\">\n                    <p><i>Created by <a href=\"https:\/\/www.findlaw.com\/company\/our-team.html\">FindLaw&#8217;s team<\/a> of legal writers and editors<\/i><\/p>\n\n                | Last updated\n        <time>\n                            June 06, 2024\n                    <\/time>\n    <\/div>\n\n            <div class=\"fl-gutenberg-byline-editorial-note fl-text-sm\">\n            <p>Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n        <\/div>\n    \n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-legally-reviewed\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Legally Reviewed\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>This article has been written and reviewed for legal accuracy, clarity, and style by <a href=\"https:\/\/www.findlaw.com\/company\/our-team.html\">FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with <a href=\"https:\/\/www.findlaw.com\/company\/company-history\/editorial-policy.html\">our editorial standards<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n\n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-fast-checked\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Fact-Checked\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>The last updated date refers to the last time this article was reviewed by FindLaw or one of our <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/contributing-authors.html\">contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please <a href=\"https:\/\/lawyers.findlaw.com\/?fli=bylinelink\" target=\"_blank\" rel=\"noopener\">contact an attorney in your area<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n<\/section>\n<p>Going public, or selling shares of stock to the public, is one of the most important events in a company&#8217;s life. The new capital raised in a <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-finances\/due-diligence-checklist-going-public.html\">successful public offering<\/a> can dramatically increase a company&#8217;s potential for growth, supplying funds for technology, research, new product development, construction, expansion into new markets, and acquisitions.<\/p>\n<p>On the other hand, these benefits are not without costs, most importantly in the form of a loss of control over the business. Here is a list of pros and cons to consider in determining whether to go public.<\/p>\n<h2>PROS<\/h2>\n<ul>\n<li>By going public, the company will improve its <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-finances\/financial-statements-the-balance-sheet.html\">financial condition<\/a> by obtaining money that does not have to be repaid.<\/li>\n<li>Stock in the company can be used in part to finance acquisitions of other companies (i.e. part of the purchase price can be <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/asset-purchase-vs-stock-purchase-advantages-and-disadvantages.html\">paid in stock<\/a>).<\/li>\n<li>Company stock in the form of stock options can be offered to employees and contractors as a meaningful form of <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/employment-law-and-human-resources\/wages-and-benefits-overview.html\">incentive compensation<\/a>.<\/li>\n<li>The public market for the company&#8217;s shares provides an irrefutable valuation of the company on a daily basis.<\/li>\n<li>The company obtains increased prestige and visibility.<\/li>\n<li>Shareholders of the company benefit from holding shares that are, subject to certain restrictions, freely marketable and usable as <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-finances\/loans-and-investors.html\">collateral for loans<\/a>.<\/li>\n<li>Shares that are publicly traded generally command higher prices than shares that are not publicly traded.<\/li>\n<li>Shareholders are able to diversify their investment portfolios, due to the increased marketability of their shares.<\/li>\n<li>Management in publicly held companies is generally compensated at a higher level than management of private companies.<\/li>\n<li>Management personnel upgrade their experience and employability by virtue of having served in responsible executive positions in a publicly held company.<\/li>\n<\/ul>\n<h2>CONS<\/h2>\n<ul>\n<li>When a company goes public, management loses some of its freedom to act without <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/corporate-structure-directors-to-shareholders.html\">board approval<\/a> and approval of a majority of the shareholders in certain matters.<\/li>\n<li>Shareholders tend to judge management in terms of profits, dividends and stock prices. This can cause management to emphasize short-term strategies rather than long-term goals.<\/li>\n<li>The cost of an initial public offering is substantial, in the form of underwriter&#8217;s commissions and expenses, legal and accounting fees, printing costs, and registration fees.<\/li>\n<li>When a company becomes publicly held, the SEC requires it to reveal sensitive information on an ongoing basis, including business strategies, financial results, and executive salaries and compensation arrangements.<\/li>\n<li>The company is required to have its financial statements <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/equity-investors-your-business.html\">audited on a regular basis<\/a>.<\/li>\n<li>As a public company, the company will have continuing costs for periodic reports and proxy statements that are filed with the regulatory agencies and distributed to the shareholders.<\/li>\n<li>A substantial portion of management time must be dedicated to initial and ongoing reporting requirements of regulatory agencies rather than to management of the company&#8217;s operations.<\/li>\n<li>Management and accounting information systems often must be upgraded.<\/li>\n<li>Management&#8217;s marketability of shares is partially constrained by prohibitions on <a adhocenable=\"false\" href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-finances\/do-s-and-don-ts-insider-trading.html\">insider trading<\/a>, prohibitions on short-sales and classification of their shares as restricted securities.<\/li>\n<li>Control of the company, as well as management positions, can be taken away from existing management if a dissident investor or group of investors obtains majority control.<\/li>\n<\/ul>\n<h2>Discuss Your Questions About Going Public with an Attorney<\/h2>\n<p>Going public can be a huge undertaking, and it&#8217;s important to understand all the implications of allowing the public to invest in your business. The best way to understand the implications of going public is to contact a <a href=\"https:\/\/lawyers.findlaw.com\/business-commercial-law\/?fli=dcta\" target=\"_blank\" rel=\"noopener\">business attorney<\/a> who will be well-versed in the laws surrounding securities and initial public offerings, and can explain the advantages and disadvantages of your business going public.<\/p>\n<div class=\"was-this-helpful\">\n    <div\n            class=\"was-this-helpful__question-container\"\n            aria-labelledby=\"was-this-helpful__question\"\n            role=\"group\"\n    >\n        <span\n                id=\"was-this-helpful__question\"\n                class=\"was-this-helpful__question fl-text-lg-bold\"\n        >Was this helpful?<\/span>\n        <button\n                class=\"was-this-helpful__button fl-text-sm\"\n                aria-label=\"Yes\"\n                value=\"yes\"\n        >\n            <span class=\"was-this-helpful__button-text fl-text-bold\">Yes<\/span>\n 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The new capital raised in a successful public offering<\/p>\n","protected":false},"author":41135,"featured_media":0,"parent":4402,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"app\/Http\/Controllers\/Templates\/ArticleWithBreadcrumbsController.php","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_autodraft_ids":[],"_cloudinary_featured_overwrite":false,"_sb_is_suggestion_mode":false,"_sb_show_suggestion_boards":false,"_sb_show_comment_boards":false,"_sb_suggestion_history":"","_sb_update_block_changes":"","_is_real_time_mode":false,"_realtime_collaborators":"","footnotes":"","cf_checklist_status":[]},"categories":[2],"tags":[9],"state_laws_tags":[],"flmsa":[],"class_list":["post-4456","page","type-page","status-publish","hentry","category-smallbusiness","tag-aff-llc"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/pages\/4456","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/users\/41135"}],"replies":[{"embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/comments?post=4456"}],"version-history":[{"count":0,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/pages\/4456\/revisions"}],"up":[{"embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/pages\/4402"}],"wp:attachment":[{"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/media?parent=4456"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/categories?post=4456"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/tags?post=4456"},{"taxonomy":"state_laws_tags","embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/state_laws_tags?post=4456"},{"taxonomy":"flmsa","embeddable":true,"href":"https:\/\/www.findlaw.com\/law-api\/wp-json\/wp\/v2\/flmsa?post=4456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}