When a company is said to “go public,” it is releasing privately held shares for sale to members of the public for the first time. Private companies are held and controlled by a limited number of shareholders, such as members of the same family. Public companies have shares available for purchase by anyone, giving members of the general public an opportunity to own a share and have a vote in company decisions. The process of going public is lengthy and requires a number of steps. Private companies are often scrutinized for signs that they may be on the verge of going public.
Companies usually decide to go public because they are in need of capital. By selling shares, a company can access a ready source of financing. Going public can facilitate expansion, project development, and other endeavors on the part of the company. It also creates risks, as having publicly traded shares can make companies vulnerable to takeovers, as well as other decisions made by stockholders, like ousters of board members.
Also known as an initial public offering, the process of going public usually starts when a company identifies the need for capital and locates an underwriter. Underwriters are firms that agree to buy the offering, typically at a discounted rate, for resale to the public. The underwriters participate in the process of deciding when to make the announcement and how to promote the initial public offering, with the goal of selling the stock offering as quickly as possible.
The decision to go public does not force a company to put itself entirely up for sale. Companies can decide on the percentage of stock they want to release to members of the public and they can make additional offerings later, if necessary. Once the stock is sold in the initial public offering, it enters the secondary market, where individuals trade stock with each other. Companies do not get a share of the profits from sales on the secondary market, although they can benefit from increased stock values. Having valuable stock can make it easier to access financing and other needs.
A company chooses the timing of a decision to go public with care. Financial markets are notoriously volatile. Selecting the wrong day to release a stock offering can result in a disaster for a company. Even the most careful planning can go awry if events intervene to depress or confuse the market on the day a company has scheduled to go public.