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 going public business definition 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 you may be motivated to list your home-based business on the New York Stock Exchange. Not so fast! The going public definition contains some unspoken requirements about fitness for the public markets.

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

Going Public Advantages

Going public can have many advantages for a company. It can diversify ownership, strengthen your capital base, make corporate acquisitions easier, and even enhance your 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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• IPO Definition
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