Facebook IPO. Image credit cbsnews.com

Facebook IPO. Image credit cbsnews.com

ZIMSEC O Level Business Studies Notes: Going public and Going Private

Going Public

  • involves converting a private limited company into a public limited company.
  • This usually involves an Initial Public Offering.
  • A lot of companies go public after trading for a number of years for example Google, Facebook and Twitter.

Reasons for going public

  • To maximize shareholder value
  • To enable to raise more capital by selling shares on the stock exchange
  • To give shareholders a way to liquidate their shares. Often companies are funded by Venture capitalists who may wish to cash out at some future point. When a company goes public the Venture Capitalists can cash in their shares.
  • Provides a market valuation for a company and its shares.
  • To market and publicize the company

Going Private

  • This is when a public limited company is converted into a private limited company. This usually involves buying back all the shares that are owned by the public for example Dell went private in 2013.
  • Dell and Heinz went private after being public limited companies for years.

Reasons for going private

  • The business can be able to focus on their long term goals away from investor scrutiny
  • The business can focus on growth, diversity and other goals without fear of Stock Exchange share turbulence.
  • The business can now keep its data private and confidential
  • Can avoid the stringent rules and regulations that listed companies have to follow
  • To recapture shareholder value
  • To regain back control
  • To avoid potential hostile take over bids
  • To lower operating expenses-running a private limited company is almost always cheaper than running a public limited company
  • To avoid the pressure of quarterly and other short term projects

To access more topics go to the O Level Business Notes page.

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