How Securities are Issued?

Chapter: 2 How Securities are Issued?

Section: 7 Disadvantages of going Public

There are a number of disadvantages for companies to go public:

 

  • The initial and ongoing costs of going public are substantial.

 

  • Going public requires time. 

 

  • Disclosure requirements increase for a public company.

 

  • If more than 50% of your shares are sold to the public, you may be faced with losing control of your company.

 

  • You can no longer make all decisions unilaterally or on an immediate basis.

 

  • Once the company goes public, there is a performance pressure to provide reasonable returns to the shareholders.

 

  • External economic factors and overall stock market fluctuations can affect the value of a company.

 

  • After an initial public offering, insiders’ shares are usually held in escrow for a period of several months to several years.

 

  • Levels of compensation, benefits and related-party transactions that may work for a private company may not be appropriate for a public one.

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