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The Benefits of Initial Public Offerings

Published July 6, 2010

When a corporation needs to raise a large amount of capital, an initial public offering can be a wise course of action.  To conduct an initial public offering, a corporation’s shares are made available for purchase to the general public. Doing so provides the company with a substantial influx of cash and the opportunity to grow the business.  This term applies only to the first of such offerings, and any later offerings are referred to as secondary market offerings.

Besides the obvious gains resulting from an initial public offering, a company will increase awareness and credibility with the public.  Increased credibility may actually serve to attract more investors.  This is because public companies are more carefully monitored than private companies, and many investors feel that that they make more stable investments.  This increased demand is then reflected in a higher overall valuation of the company.

An initial public offering can also aid companies that wish to attract and retain quality employees, since going public can facilitate certain forms of compensation.  While shares of a privately held company can certainly be offered as compensation, shares become more valuable when they have the liquidity and stability that accompany going public.

An initial public offering may not be right for every company, but it is certainly appropriate for many.  A corporation wishing to pursue an initial public offering should be prepared to shoulder the burdens of additional expense and profit-driven stockholders.  The major influx of cash that going public can provide might be just what it takes to take a company to the next level.

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