All You Need To Know About Initial Public Offering Or IPO (Part 4 of 5)
( Continued…)
IPO Part 4 of 5 : What happens legally when a firm goes public?
1. The company falls under the guidelines of the SEC / SGX.
2. That means it will have to follow disclosure rules like holdings and transactions of insiders or the officers and directors of the company.
3. It will have to disclose its financial status on a regular basis and come under surveillance by the SEC / SGX on its trading practices.
4. And it will have to hold shareholder meetings.
Advantages of IPO
1. Once a company is listed, it is able to issue additional common shares in a number of different ways, one of which is the follow-on offering.
This method provides capital for various corporate purposes through the issuance of equity without incurring any debt.
This ability to quickly raise potentially large amounts of capital from the marketplace is a key reason many companies seek to go public.
An IPO accords several other benefits to the previously private company:
* Enlarging and diversifying equity base
* Enabling cheaper access to capital
* Increasing exposure, prestige, and public image
* Attracting and retaining better management and employees through liquid equity participation
* Facilitating acquisitions (potentially in return for shares of stock)
* Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.
Disadvantages
There are several disadvantages to completing an initial public offering:-
* Significant legal, accounting / compliance and marketing costs, many of which are ongoing ( IPO costs )
* Requirement to disclose financial and business information ( Loss of Privacy )
* Meaningful time, effort and attention required of management
* Risk that required funding will not be raised
* Public dissemination of information which may be useful to competitors, suppliers and customers
* Loss of Control due to new shareholders
* Increased Risk of Litigation, including private securities class actions and shareholder derivative actions
* Vulnerable to Hostile Takeover
(look out for IPO Part 5 of 5 : Singapore MainBoard & Catalist listing requirement)
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