In a world where jobs have become scarce and the rate of unemployment on a daily rise, exploring available options and maximizing limited means to meet daily needs is premium for the survival of individuals in the society and those of the economy of every nation.
An ever increasing population growth poses an unending challenge to government on job provisions for citizens.
In the midst of the fog of this strife, lies an option like a light at the end of the tunnel: “teaching, training and empowering citizens to own businesses”.
Entrepreneurship fulfils the righteousness of the common saying; don’t give a man fish, but do teach him to fish.
Capital: A Propeller For Entrepreneurship
Most intending or active entrepreneurs have a good business plan. However, dreaming is one thing, and actualization is another.
Capital is the vehicle with which business ideas are brought from the dreamworld to reality.
Survival of businesses in the post-pandemic era has been challenging. Forces like devaluation of capital, inflation, recession, scarcity and expensive factors of production have caused so many businesses to shut down.
Entrepreneurs are looking for solutions to the crisis, with the hope of keeping their firms running.
Initial Public Offering: The Bail Out
Just like we all, once in a while, need a shoulder to lean on, businesses likewise do need a helping hand. When private companies require more capital than is available, Initial public offering provides an avenue to expand their capital base.
Initial public offering simply means the process by which private companies offers their shares to the public.
The company, known as an issuer, goes into contract with an investment bank, referred to as the underwriter.
The underwriter approaches the investors (the public) with the share offers, helping the company to sell the shares to the public.
Law firms can also be involved, to help handles all legal requirements of the process.
Pros of Initial Public Offering
Initial public offering is beneficial for the following reasons:
- It provides an avenue to expand the capital base of a company. Financing the business gets easier, as capital is accrued from the sales of shares
- It helps to project the public image of a company. Since making company information available to the public is one of the processes involved in an Initial public offering, the process would help in the publicity of the firm. This helps to project the public image of the company
- It helps provide an avenue for acquisition. Initial public offering makes transfer of ownership or an avenue to own a private company possible. Rather than closing down, interested members of the public can save a private company from the horrors of bankruptcy, through purchase of shares and acquisition, thanks to initial public offering.
- It is a tool for developing strong and effective management team. When members of the management team, or employees, through initial public offering, get the chance to become joint-owners, they get a feeling that work done for the company is work done for themselves. When the business fails, as such, they are aware that they share in the loss. Thus, this motivates diligence, efficiency and effectiveness in management team performance and those of employees.
Cons of Initial Public Offering
As usual, there is always two sides to a coin. Thus, while talking about the benefits of initial public offering, it is expedient to mention a few risks that comes with it.
- Exposure of company data. As stated earlier, company information are made available for the public. Such information in the wrong hands, of competitors for instance, can be used to the disadvantage of the company
- It reduces private control over the company. The private owners of the company will lose absolute control, as every shareholder becomes a joint-owner. External acquisition and take-over are also probable risks involved, when legal security frameworks are not in place
- It requires proper planning, involves more effort and incurs cost. Initial public offering comes at a price. Each party involved; the underwriter, stock brokers and legal firms are compensated for their services. Shareholders in the long run, likewise, share from proceeds as well. Much effort and planning is required, to avoid failure of the process
There is a phrase that goes thus, “No risks, no reward”, having discussed the pros and cons of initial public offering.
I believe that private company owners can be empowered by this knowledge, safely using initial public offering as wings to fly their companies to a higher altitude of greatness.
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