5 Advantages of an Initial Public Offering

  • By: Adam Wire
  • March 28, 2024
Reading Time: 4 minutes

From the very first startup board meeting, many companies dream of going public one day. Conducting an initial public offering (IPO) is a pivotal moment for any company and its board of directors. It represents success, change, and growth all at once. 

Selling shares on the public stock market opens the doors to many benefits. It launches a new phase in the business life cycle, in which it becomes possible to grow beyond the initial business scope with the help of new capital, new investments, and new opportunities. Learn the initial public offering advantages below.

What is an Initial Public Offering?

An initial public offering (IPO) is the process by which a private company becomes publicly traded by offering its shares to the general public on a stock exchange for the first time. This allows the company to raise capital by selling ownership stakes to public investors. 

During an IPO, the company coordinates with investment banks to determine the offering price. This price is typically based on financial factors such as the company’s financial performance, growth prospects, and market conditions. During an IPO, a company will go through a rigorous internal audit to conduct due diligence and meet SEC requirements.

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Initial Public Offering Advantages

When deciding whether it’s the right time for an IPO, businesses often debate the pros and cons. Going public is popular because the advantages of an initial public offering often outweigh any challenges or downsides. These benefits include capital, visibility, investor opportunities, a new kind of business currency, and the enhancement of the company’s governing structure.

A business that understands these advantages can plan to maximize them before, during, and after their IPO as they become a publicly traded company with new governance, operations, and opportunities.

1. Access to Capital

When a company sells shares to public investors, they receive capital in return for each share. In this way, an IPO is an excellent fundraiser, allowing businesses to sell pieces of the company that can then be reinvested in growth and profitable endeavors, which benefits the new shareholders and the company itself.

A company decides on the price and quantity of shares in order to generate capital through their sale. The total amount of shares sold at the set price determines the total capital that is accumulated as a result of the IPO. Then, trading shares on the public market and releasing new shares can continue to provide a source of capital.

Funds from an IPO are almost always put toward growth and expansion. They can be used to establish new locations, grow departments, invest in research and development of new products, or hire new people. Sometimes a business will expand into new markets or simply grow their current operations to handle a larger market share of their current markets. All these uses of IPO capital increase the company’s profitability, which aligns with shareholder goals.

2. Increase Visibility and Prestige

An IPO is a prestigious public event for any company. Going public makes the news, is talked about in investor circles, and reflects on the success of the company. An IPO is a great opportunity to boost the visibility of a brand and increase their credibility as a prestigious company that is worth investing in.

Once a company has shares available on the public market, they also gain access to a new channel for marketing and reputation-building. If their shares are desirable and sell at rising prices, their company reputation will rise as the stocks are recommended and published in investment reports. 

3. Liquidity for Existing Shareholders

Before a company goes public, they may have a number of private investors or shareholders who made the magic happen during a company’s startup launch. From friends and family who own private stocks to venture capitalists and angel investors, these investors will have a chance to see their investments realized as liquid profits when the company goes public. While early shareholders can hold onto their shares, they can also choose to sell their shares on the public market at a significant profit.

4. Currency for Acquisition

Once a company has publicly traded shares on the stock market, those shares become a unique type of currency only available to public companies. If a company wants to acquire another company, they can buy in stocks without reducing their current financial capital. 

The same currency can be used in negotiations with business partners, offering shares to receive more favorable deals and exchanges, or to reward or incentivize employees.

5. Enhanced Corporate Governance and Transparency

A company that goes public must meet specific and rigorous governance standards. A part of this is the formation or reorganization of a board of directors. The board must operate under the strict rules of an operating agreement while prioritizing the company’s growth, profitability, and core values.

Committee meetings and corporate minutes provide extreme transparency, ensuring the board and the business are managed properly from the top down.

OnBoard Powers Effective Startups

When preparing for your IPO, one of the big steps is to form your first board of directors. OnBoard can help streamline internal operations and prepare the board for success. The OnBoard platform features a variety of tools that make it easy to plan, conduct, and take action on board meetings in full compliance with the standards of a publicly traded company.

Check out our Board Meeting Minutes Template to see how successful companies record meeting minutes.

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About The Author

Adam Wire
Adam Wire
Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.