Finance

3 Pages 638 Words

This financial management company, which this man created, is obviously in the ideal position for growth. The question is which medium he will use to fund this growth. Either he can go public and sell shares of stock or sell the company privately. There will be advantages and disadvantages for each path.
Going public allows the owner to diversify his financial holdings, increase liquidity, facilitate raising new corporate cash, establish value for the firm, can set up merger negotiations, increase potential markets. Issuing stock to the public allows the owner to reduce risk privately; he can sell stock to diversify his holdings in his private portfolio. The market also allows the company to become very liquid by giving the owner the ability to sell existing shares for cash. It also provides an avenue to raise cash quickly by issuing new shares of stock for the market to consume. By going public will also provide an exact value of what the company is worth. This information will help in a number of different ways, such as providing stock options for employees. This value also opens the company to mergers and acquisitions. Stock can provide a medium of payment when the company is acquiring or being acquired by another company. The market can also be a promotional tool that can potentially acquire new customers just by going public.
There are disadvantages of going public such as cost of reporting, disclosure, self dealings, inactive market, loss of control, and investor relations. Once a company has gone public the SEC and other agencies need to have reports filed by the company. This can be a very costly to a company on the smaller end. Since the company has gone public, so does the books. An owner might use questionable but legal bookkeeping practices for tax advantages; this will not be allowed once everything is seen by the public. The stock that has been issued into the market can become stagnant if it’s not trade frequently....