Here is a list of reasons that work behind the idea of a company going public.
1. Raise Capital
One of the prime reasons for a company to go public is to raise capital. Bank loans come with high interest rates, which can burden a company in case there is a large amount of debt. Here, IPO offers companies a large sum of money in a cost-efficient way.
These entities can use the money gathered through IPO to clear debts, expand, etc.
2. Increase Credibility
The Securities and Exchange Board of India (SEBI) is responsible for regulating the stock market and has set stringent rules for activities in this arena. Therefore, when a company issues IPO, it means it abides by the rules of SEBI hence a reliable company.
In addition, demand and supply determine the stock price. Therefore, if a company’s share is selling at ₹ 70 and another company’s share is selling at ₹ 700, it reflects that the latter has more demand in the market. It helps to attract buyers and increase the chance of better mergers and acquisitions.
3. Boost Liquidity and Profitability for Stakeholders
When a company goes public, it can utilise brand value and goodwill earned throughout operational years. With a positive brand image, a company can trade its shares in large volume and earn more profits.
4. Make a Strong Market Presence
The launching of an IPO occurs every month. There might be cases where investors do not know about the launch of any IPOs. When a company issues an IPO, investors start researching about that company and scrutinise business and financial documents. This way, a company starts to make a strong presence among investors slowly.
5. Expansion Purposes
When a company gets huge funds, it can easily think of expanding its business by acquiring other small companies. Thus, that company can accelerate growth.
As individuals have learnt the primary reasons for a company going public, let’s focus on the ways of listing a company.