Topic: How To Invest

Q: Dear Pat: What are the barriers that prevent a private company from going public? Is it generally a goal of private companies to go public?

Article Excerpt

A: The decision to go public or remain private depends on a number of factors that a company’s owners must evaluate from the unique perspective of the firm: The main reason that a company sells shares to the public through an initial public offering (IPO) is to raise capital by reaching a large number of investors. This capital could be used for any number of things—from funding growth by acquisition, the expansion of existing operations or research to paying down debt. Share capital is also generally cheaper than debt financing. IPOs can generate publicity for a company, drawing attention to its products or services. This can lead to expanded market share. Publicly trades shares can also provide a more liquid form of executive and employee compensation. Share offerings are often used to provide company founders with an exit strategy, letting them cash in some or all of their interests in a private company. Venture capitalists who helped fund early growth may also put…

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