Advantages and Disadvantages of Going Public Flashcards
Talon, Inc. is a privately held manufacturing company. Management of the company is considering taking the company public through the issuance of common stock.
Terry Savage, the president of the company, has asked you prepare a memorandum describing the advantages and disadvantages of going public.
Advantages.
-Access to a much larger pool of equity capital.
-Stock will trade on an organized market, making it easier to issue additional stock.
-Stock can now be used for business acquisitions=
-Can offer stock-based compensation to employees.
-Owners’ investments become liquid. They have the opportunity to readily sell all, or a portion, of their investment in the company.
Talon, Inc. is a privately held manufacturing company. Management of the company is considering taking the company public through the issuance of common stock.
Terry Savage, the president of the company, has asked you prepare a memorandum describing the advantages and disadvantages of going public.
Disadvantages.
-There are significant costs involved in the initial public offering of stock.
-Continuing costs of compliance with SEC laws and regulations, including the Sarbanes-Oxley Act.
-Causes management to focus on maximizing stock price, which may not be in the best long-term interest of Talon.
-Must disclose significant amounts of information that becomes available to competitors, customers, and potential corporate raiders.
