public-companyOne thing I know is that the shareholders become rich as people buy their shares. What are the other aspects of the story?
It all depends on your personal goals and the company goals when talking pros and cons. Shareholders “can” become rich “if” people buy their shares. Many companies go public only to see their estimates fail and the cost of going public is extreme in most cases and many times bankrupts the company.
That said (assuming you have a successful launch to the public on a major exchange):
Pros:
Ease of raising capital. You have a limitless pool of money and worldwide market of investors.
If your company is well received, your initial stock which was basically free when you started the company is now worth millions.
New capital allows your company to do much more whether it be branding, emerging markets, R&D, etc.
Cons:
The cost of going public is huge ($). From legal and accounting fees to finding the right investment bank to take you public.
The cost of staying public is huge ($). Again legal and accounting fees. Sarbanes Oxley.
Ease of losing control of your company aka corporate takeover.
Cost of going public and staying public is huge ( Non $ ). It is a very time consuming and taxing process and can disrupt your normal business operations.
All of your financials are now public knowledge. Many people and companies do not like this information to be public knowledge.
The real advantage to going public is simply the ease of obtaining capital. Most companies would stay private if they could raise capital as easily in the private market.
The biggest pro of going public is that you can raise much more money through the sale of company stock to fund the company’s projects and products.
The cons include the much more complicated reporting you are required to do as a publicly-traded company. You also now have a responsibility to shareholders that you don’t have as a private company (assuming the private company didn’t sell shares to anyone either). Being a publicly-traded company makes it easier for someone to take over your company, provided enough of your shareholders vote for the sale. As a private company, if you don’t agree then nobody can buy you.
This is just scratching the surface, but to me they’re the pros and cons that stand out the most.
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