What is an IPO? IPO stands for Initial public offerings, through which the shares of any company are made available to the Public. Smaller business usually required to conducts the IPO, but biggest private companies are need to made public. Initial Public offerings allow business to get additional funds for their business and monetize the shareholder assets. The IPO process is well known with the term Going Public, as it makes the shares of the company available to the Public.
Even an IPO helps the company to get additional funds and monetize its functions, but there are some drawbacks to IPO also. In this article, we are going to tell you about the IPO meaning, its advantages, and disadvantages.
What is IPO
IPO, Initial public offerings is process through which company issues their shares to Public for first time. By make the shares public, the company are also able to get investors for their shares. In this way, investors get the opportunity to invest in company shares and provide capital to the company to grow and expand more. The people who buy shares also become part of the company.
Advantages of IPO
IPO brings many benefits for the company, investors, and others. Let us know about the IPO benefits by reading the given factors.
Brand Recognition
IPO improves the exposure of the company to the outside world and improves its brand recognition. It helps the company to connect more with customers and investors. Moreover, the completing the screening process by company at time of listing improve social reputation. It boost the company credibility and sense of security and make it easy for business to attracts clients.
Strengthens financial resources
IPO helps the company to raise a large amount of money from regular people through the stock market. Moreover, business are benefits from increased social legitimacy that come with IPO listing. The money obtained by the company in this way is used to finance the new initiatives and ensure the growth of the business.
Strengthens management structure
IPO helps the company to improve the governance and transparency for listing. It boosts the internal controls of business and increases management with compliance awareness. By establish the governance, the company can reduce risks such as information leaks and scandals. Moreover, It facilitates the better working conditions of company, and lower turnover of employee. IPO listing also makes work easier for staff members. The investors and financial institutions are able to support companies by IPO listing and maintain consistency with them.
Optimize the closing
Public companies are required to submit their reports on time. It is important for companies to submit their financial reports on time because they complies with IPO regulations and increase the closing procedure. Having audit conducts by agency boosts the credibility of business.
Growth in stock value
The market determines the stock prices on the basis of demand and supply, which drive up the shareholder assets values. If several benefits are gained by IPO listing, then it ensures the company’s growth and also increases the stock price.
Create employee assets and increase motivation.
If the rate of stocks increases, you can participate in increasing employee motivation and build wealth through stock ownership program implementation. However, IPO listings offer various stock options to the company.
Business succession measures
By allowing owners and founders to sell the shares in the open market, the company gets many benefits and reduces the risks associated with inheritance and business succession.
Realization of profits
After initial Public offerings of shares after IPO listing, then founders can earn profits by sell their shares. The money acquired by the company helps it make investments in several ventures.
Disadvantages of IPO
There are some drawbacks also of IPO that you should know about
Transaction Cost
Initial Public offerings are costs huge money. One such high cost also involves the payment made to underwriters. Along with these costs, there are other costs associated with IPO, like accounting fees, legal fees, listing fees, etc. Companies with IPO listings need to deal with these fees also.
Consume time
The success and pricing details of company are mentioned in IPO listing, that take the huge time of company.
Risk of selling shares
Nowadays, many investors want to sell their shares after IPO listing if there is profit in it. Selling shares is simple for investors, but there are chances when they have a risky of selling shares if they do not get profits.
Loss of control
Founders of company may have less affects on organization after IPO. It is important for a company to ensure customer satisfaction. The shareholder’s vote and negative public perception may make a change in the company’s leadership.
Conclusion
The Initial Public offerings have both advantages and drawbacks. If an investor considered to invest in an IPO, then he must analyze it carefully and have some patience. Before invest in IPO, person should remember that no investment is risk free. Investing in IPO do not mean that you get profits always. You may face risks sometimes. So, you should check your financial condition first and then invest in an IPO
