Every act or process has some advantage s and some negative aspects. There is nothing in this world which has only positive aspects. So we can understand that one of the biggest events of business market is when any company issues an IPO. It may be a new entity or an already well-known company. But if and when an IPO is launched there is always much speculation around it and the market buzz helps it to reach more subscribers.
The money that comes from the primary and secondary offerings helps the company as it becomes the working capital that can easily be used for growth and debt management. The original investors who started the company can also sell their holding after a certain period of time for earning profits. But there are some stipulations of time before this can be done. The company can also offer more shares later once it is listed on the stock exchange. There are many advantages as mentioned below.
- The company becomes a public company instead of the previous status of private one. Thus it has a bigger and diverse share base. In other words, more money is available.
- It is accessible to more people and the company gets this capital without any interest. The same amount through a bank would have attracted a huge amount of interest. It has access to a huge amount of capital.
- When a company enters the stock market, its name becomes better known and the reputation also improves.
- With more money, a company can hire more employees and buy more and better equipment. The production, manufacturing processes will improve with more infusion of capital and both the quality and quantity of the output will increase.
- Once people know about the company, it is easy to sell the products and services also.
- People would like to join a company, that is well known and has a good amount of working capital. So the company can easily choose the best employees from a bigger pool of applicants.
- A company can choose many different types of financing prospects. They can easily get loans once they are listed on the stock market.
- If the company does well and pays dividend regularly then the stock price will improve and so will the reputation of the company.
As usual, there are always some benefits and disadvantages but an IPO usually helps a company to become bigger, better and stronger in terms of capital. It needs to have the essential support and follow all the regulations to succeed.