Definition
Going public refers to the process of a private company offering its shares to the general public for the first time through an Initial Public Offering (IPO). This typically implies that the company has obtained the necessary regulatory approvals and is now listed on a public exchange. The main aim of going public is usually to raise additional capital for growth, expansion, or paying off debt.
Phonetic
The phonetics of the keyword “Going Public” is: /ˈɡoʊ.ɪŋ ˈpʌb.lɪk/
Key Takeaways
<ol><li>Going Public highlights a significant milestone in a company’s growth and provides it with an opportunity to raise large amounts of capital. This process is stringent, involving a series of regulatory filings and reviews to ensure transparency and investor protection.</li> <li>As a public company, there’s a need for balanced and timely communication to stakeholders, especially around financial performance. The company is now subject to public scrutiny, with a heightened need for corporate governance, including meeting the standards set by the stock exchange and securities regulators.</li> <li>A successful public offering could lead to increased liquidity, allowing early investors to sell their shares. However, the company’s performance can be subject to market volatility, introducing new risks that require astute management and strategic planning.</li></ol>
Importance
Going public is a significant milestone in a company’s lifecycle due to several reasons. First, it signifies the company’s growth and readiness for a larger operating environment. Second, going public garners increased credibility and visibility, which can help attract potential customers or partners. The most critical aspect of going public, however, is the accumulation of considerable capital through the sale of shares openly in the stock market. This capital can be used for various purposes such as research and development, business expansion, or debt repayment. Furthermore, a public company stands a better chance to negotiate better rates when seeking loans and credit facilities because lenders view their financials as more reliable. Therefore, going public is vital drivers of a firm’s economic growth and financial stability.
Explanation
Going public represents a critical juncture in a company’s life where it decides to shift from being privately owned to becoming a publicly-traded entity. This usually involves the company issuing an Initial Public Offering (IPO), which is where shares of the company are sold to the general public for the first time. The primary purpose of going public is to raise funds. These funds can be used to fuel various company needs, such as research and development, expansion of operations, or even to pay off existing debt. It allows the company to tap a larger pool of investors, beyond private investors or venture capitalists, by inviting the general public to own a part of the company.Additionally, going public can also significantly increase the visibility and credibility of a company. Being publicly traded means that the company’s financials and operations are transparent to the public, thereby fostering trust and attracting potential investors, customers, and talented personnel. It also provides existing shareholders, including company employees who own company stock, an opportunity to sell their shares and potentially make a profit. Hence, going public can serve various purposes depending on a company’s needs, ranging from raising capital for growth, increasing the company’s visibility and credibility, to providing liquidity to existing shareholders.
Examples
1. Facebook Inc.: Renowned social media giant Facebook Inc. went public on May 18, 2012. The initial public offering (IPO) was one of the biggest in the history of internet companies, with a peak market capitalization of over $104 billion. This monumental event allowed investors to buy Facebook shares and become part of the company’s growth and profit.2. Alibaba: Alibaba Group, the Chinese multinational conglomerate specializing in e-commerce, technology, and various other sectors, went public in the U.S in September 2014. By raising $25 billion in its IPO, it made history with the world’s largest IPO to date.3. Google: Now known as Alphabet Inc, Google went public on August 19, 2004. In one of the most anticipated tech IPOs, Google priced its initial shares at $85. The company’s IPO is considered a huge success, and today, Alphabet Inc. is one of the world’s most valuable companies.
Frequently Asked Questions(FAQ)
What does ‘Going Public’ mean in Finance and Business?
‘Going Public’ refers to a company’s initial public offering (IPO), when a company offers its private shares to the public for the first time.
Why might a company want to go public?
Going public can help a company raise significant capital allowing it to grow and expand. The company also gets more visibility and an enhanced status.
What is the process of going public?
The process involves steps such as selecting an investment bank, regulatory filings, audit, pricing the shares, roadshows, and finally, selling to the public.
Are there any risks associated with going public?
Yes, going public brings increased scrutiny and liability. The company’s financials become public, it has to answer to shareholders and meet strict regulatory requirements.
What happens to the ownership of a company when it goes public?
When a company goes public, its ownership is spread among public shareholders. The initial owners often retain a portion of the stock, but control is distributed among the public shareholders.
What’s the role of an underwriter in going public?
An underwriter prepares and files necessary registration materials, advises the company, arranges financing, and takes on the risk of buying the shares from the company to resell.
Is ‘going public’ an option for all companies?
Not all companies qualify to go public. They should meet certain financial criteria, be willing to disclose necessary financial information and prepared for the costs involved in going public.
How is the share price determined when a company goes public?
The initial share price is typically decided by the underwriter. It’s based on a variety of factors, including the company’s financials, the current market conditions, and interest from potential investors.
Can a company’s stocks be sold immediately after going public?
Yes, the stocks can be sold after public trading begins. However, company insiders are often subject to a lock-up period of around 90-180 days where they can’t sell their shares.
Can a public company go back to being private?
Yes, a public company can go back to being private through a process called privatization. This involves buying back shares from public shareholders often at a premium.
Related Finance Terms
- Initial Public Offering (IPO)
- Securities and Exchange Commission (SEC)
- Public Company
- Stock Market
- Underwriting
Sources for More Information
