Going Public Definition

Going public refers to when a company undertakes its initial public offering (IPO). This means a company sells shares of its stock to the public for the first time.

Most companies do this to raise additional capital. After its IPO, the company will be subject to public reporting requirements. Because this reporting can be labor-intensive and expensive, companies carefully consider the benefits and burdens before undertaking an IPO.

How does a company go public?

Regulatory Process

To conduct a registered initial public offering, the Securities Act requires a company to file a registration statement with the Securities and Exchange Commission (SEC). The SEC then has to approve the registration statement before any securities can be sold.

Business Process

When most people think of “going public,” they aren’t aware of the need to file a registration statement with the SEC. Instead, the business definition of going public is what comes to mind. But the registration statement is the first step. Once it’s approved, the business process begins with contacting an investment bank and deciding on the number and price of shares to be issued. 

Investment banks underwrite the new shares. In other words, they essentially buy the shares from the company with the goal of selling the shares to the public for more than what the bank paid for them. 

Requirements for Listing

Going public may sound like a sweet deal, and now a home-based business owner might be motivated to list their company on the New York Stock Exchange. Not so fast! A company needs to meet certain standards before it can go public.

Before attempting to go public, a company should have:

• Predictable and consistent revenue — since the business needs to be able to reliably predict the next quarter and the next year’s expected earnings
• Enough extra cash to fund the IPO process — as funds raised from going public can’t necessarily be used to pay down high IPO costs
• A strong and stable management team 
• Sound, audited financials — ideally for several years
• Strong corporate governance practices
• A low debt-to-equity ratio
• A long-term business plan — with financials spelled out for the next three to five years to help the market see that the company knows where it’s going

If a company meets all these characteristics, then it may be good to consider whether going public would make an IPO worthwhile for the company. Some lucky business owners have found that going public has made their small businesses into household names around the world.

Going Public Advantages

Going public can have many advantages for a company. It can diversify ownership, strengthen the brand’s capital base, make corporate acquisitions easier, and even enhance the company’s prestige.

Going Public Disadvantages

Unfortunately, going public is expensive. It can increase long-term costs, and it imposes restrictions on management. Being a public company forces disclosure to the public and places restrictions on trading. It also takes decision-making control away from former business owners and turns decisions over to corporate boards and management.

Going Public: Summary

• Going public refers to a private company’s initial public offering (IPO).
• Going public helps a company raise capital to invest in future operations, expansion, or acquisitions.
• However, going public can be expensive, imposes restrictions on management, and opens the company up to regulatory reporting requirements.
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How ZenBusiness Can Help a Small Business

Going public is a great goal, but for many entrepreneurs, there’s a long to-do list to conquer first. One of the biggest items on that list is starting a corporation; ZenBusiness can help with that; their Corporate Formation Services can help entrepreneurs start a corporation in virtually all 50 states. The brand also offers a variety of services to help manage a company well, including their Worry-Free Compliance Service and ZenBusiness Money Pro. Keeping a business compliant and managed well financially is essential if the owners want to take the company public.