Question

Please respond to the follwoing discussion post below from a student and provide reference if needed. Thank you so much in advance.

The IPO process is when a company goes from privately owned to publicly owned and traded over the stock exchange. This process is used to raise venture capital for the corporation (Crelin, 2013). The process is highly regulated and requires prior scrutiny from the SEC to ensure that the process is undertaken in accordance with law and ethically. The company and the securities underwriters or investment bank agrees upon the price at which a company goes public per stock. After these steps, the SEC will ensure any disclosures necessary are made and the company must confer with the Financial Industry Regulatory Authority for approval. After this they must receive approval from the market upon which they will be listed and marketing begins for the IPO, after which the final approval with happen and the stock will launch.

            In a sole-proprietorship, a single person owns a company, and similarly a partnership is a company owned by 2 or more people.   When a company becomes a corporation, the company itself is a separate entity than the owners, and therefore the owner cannot be personally sued in terms of litigation of wrongdoing. Additionally, the taxes are against the business rather than a person. When a company goes through the IPO process, it then becomes owned by stockholders but ran by executives. When a company wants to raise capital, going public through the IPO process can help.

            An example of this was when Facebook went public. The IPO was released to much fanfare and raised $100 per stock in the years since. This was accomplished by Facebook going through the process to go from private, to publicly owned and has raised the amount of capital available to the company.

Reference:

Crelin, J. (2013). Initial public offering (IPO). Salem Press Encyclopedia,

Answer 1

The primary benefit of raising an IPO is that a company becomes public and is able to raise capital quickly by involving a huge number of investors. The company can use the funds for the business purpose and the company can increase their business opportunities. An IPO increases the Goodwill of the business since it is now listed on a major stock exchange and hence it increases investor confidence.

However it is a time consuming and expensive process and the company needs to weight the costs against the benefits that it will receive from becoming public. The company is also now answerable to numerous shareholders and needs to be able to handle the pressure of being a public company.