IPO Advantages Disadvantages

IPO  Advantages  Disadvantages in Stock Market

We live in the world, where anything can happen to anyone. There is no single way that can be the ideal for all of us when it comes to investment for savings of the money as well as for any investment. There are pros and cons for any savings, no matter it is the concept of shares or the concept of the mutual fund. The common man investor, like you and me, should always go with the trade-off between the profit and risk. This compromise is necessary, because, where there is more profit, there is more risk associated and if there is less risk for the investment, then there comes the less profit. To get the ensured profit, you go with the less risky investments. However, the resultant benefits cannot be more. That is all fine, it is from the dimension of the investors, like us. But lets us why the company goes for the IPO. What are the advantages a private corporation gets benefited by offering IPO to the public to become a public company and what are the disadvantages associated with the offering.

Advantages

  • The company helps improved reputation, like increased prestige, enhanced public image and greater exposure.
  • There will be cheaper access enabled for the capital.
  • The equity base is enlarged.
  • The equity base is diversified.
  • There will be the benefit of facilitations of the acquisitions.
  • The company benefits from the free equity participation, which attracts the better management and also helps to retain the employees.
  • The company enjoys multiple financial opportunities, such as cheaper bank loans, convertible debt, equity, etc.

 

Disadvantages

  • Certain costs, like legal expenses, marketing costs and accounting costs will be added apart from the regular costs spent in the company.
  • It is entirely possible that the objective of offering IPO may not be achieved. It means the company may not raise the capital that it is looking for, to expand the company to higher levels.
  • Once the enterprise becomes a public company, the company has to disclose all its financial information, like the business information including the rigid balance sheet and all other financial statements.
  • The company has to spend considerable effort and time to manage the new investment raised from the public.
  • The company may result in loss of control because there will be new shareholders added into the enterprise.
  • There can be agency problem that may become a stranger because there will be the new set of shareholders entered the business.
  • The business information that is disseminated to the public can be beneficial for the competitors to analyse the company.
  • The company may start facing the risk of litigation increased, such as the risks of private securities class actions, in additions to the activities that are related to the shareholder derivatives, etc.

So, it is not only for the investor of the stock, but there are also many advantages and disadvantages associated with the company too. At the same time, it is important for us to explore the pros and cons related to the investors.

Tags: IPO  Advantages  Disadvantages

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