Meaning of Public Issues: This involves raising of funds directly from the public through the issue of prospectus. When an entrepreneur decides to go public and become a public company, he/ she tends to be in advantageous position because of reaping the following benefits:
Access to capital or raising funds:
1. An entrepreneur stands to gain by going public in access to capital.
2. Generally, the capital is paid off at the liquidation of a company or not to be repaid immediately and does not involve an interest charge.
3. The only reward the IPO investors seek is an appreciation of their investment by getting dividends.
Entrepreneur can use the capital raised for a variety of purposes including:
1. growth and expansion,
2. retiring existing debt,
3. corporate marketing and development,
4. acquisition capital.
Other advantages:
1. Mergers and acquisitions: Public stock of a company can be used for businesses to grow through acquisitions.
2. Higher valuations: Public companies are typically valued more than private companies.
3. Benchmark trading price: The trading price of a public company’s stock serves as a benchmark of the offer price of other securities.
4. Capital formation: Raising capital later is typically easier because of the extra liquidity for the investors.
5. Incentives: Stock options and stock incentives can be very helpful in attracting employees.
6. Reduced business requirements: While an underwritten initial public offering requires significant earnings, the lack of earnings does not keep a private company from going public.
7. Less dilution: There is less dilution of ownership control compared to an IPO.
8. Liquidity: A public company provides liquidity for management, minority shareholders, and investors.
9. Prestige: Added prestige and visibility with customers, suppliers, as well as the financial community.
