Floating on the stock market
Advantages and disadvantages of stock market flotation
Even if your business is suited to flotation, it may not be the right choice for you. Being a public company can present a range of benefits to your business, but there are also issues that might require careful consideration.
The benefits of stock market flotation could include:
- giving access to new capital to develop the business
- making it easier for you and other investors - including venture capitalists - to realise their investment
- allowing you to offer employees extra incentives by granting share options - this can encourage and motivate your employees to work towards long-term goals
- placing a value on your business
- increasing your public profile, and providing reassurance to your customers and suppliers
- allowing you to do business - eg acquisitions - by using quoted shares as currency
- creating a market for the company's shares
However, you should also consider the following potential problems:
- Market fluctuations - your business may become vulnerable to market fluctuations beyond your control - including market sentiment, economic conditions or developments in your sector.
- Cost - the costs of flotation can be substantial and there are also ongoing costs of being a public company, such as higher professional fees.
- Responsibilities to shareholders - in return for their capital, you will have to consider shareholders' interests when running the company - which may differ from your own objectives.
- The need for transparancy - public companies must comply with a wide range of additional regulatory requirements and meet accepted standards of corporate governance including transparancy, and needing to make announcements about new developments.
- Demands on the management team - managers could be distracted from running the business during the flotation process and through needing to deal with investors afterwards.
- Investor relations - to maximise the benefits of being a public company and attract further investor interest in shares, you will need to keep investors informed.
- Employees may become demotivated - if shares are only offered to selected employees, there could be resentment. Shareholding employees could feel that there is little left to work for if they are sitting on valuable shares.
You can find out about the advantages of flotation on the London Stock Exchange website.
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