Advantages and disadvantages of stock market flotation
Stock market flotation can help you raise capital and realise your investment but may undermine your control of the business - consider the advantages and disadvantages.
Even if your business is suited to flotation, it may not be the right choice for you. Being a public company can present a range of benefits to your business, but there are also issues that might require careful consideration.
Advantages of stock market flotation
The benefits of stock market flotation could include:
- Giving access to new capital to develop the business.
- Making it easier for you and other investors - including venture capitalists - to realise their investment.
- Allowing you to offer employees extra incentives by granting share options - this can encourage and motivate your employees to work towards long-term goals.
- Placing a value on your business.
- Increasing your public profile, and providing reassurance to your customers and suppliers.
- Allowing you to do business, eg acquisitions, by using quoted shares as currency.
- Creating a market for the company's shares.
Disadvantages of stock market flotation
However, you should also consider the following potential problems:
- Market fluctuations - your business may become vulnerable to market fluctuations beyond your control - including market sentiment, economic conditions or developments in your sector.
- Cost - the costs of flotation can be substantial and there are also ongoing costs of being a public company, such as higher professional fees.
- Responsibilities to shareholders - in return for their capital, you will have to consider shareholders' interests when running the company - which may differ from your own objectives.
- The need for transparency - public companies must comply with a wide range of additional regulatory requirements and meet accepted standards of corporate governance including transparency, and needing to make announcements about new developments.
- Demands on the management team - managers could be distracted from running the business during the flotation process and through needing to deal with investors afterwards.
- Investor relations - to maximise the benefits of being a public company and attract further investor interest in shares, you will need to keep investors informed.
For further information, the London Stock Exchange highlights .
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