The reasons for an Initial Public Offering (IPO) are very diverse. Because trading stocks on a stock exchange also involves obligations, companies should carefully consider the IPO.

IPO for Capital Raising

The most common reason for an IPO is the need for more capital. This usually arises when a company wants to grow. For example, because new branches are to be opened or innovative products are to be developed. In some cases, it is also not possible to raise debt capital, such as with a bank loan, and instead, going public is chosen. Unlike debt, no fixed interest has to be paid on equity. This can be interesting for innovative and young companies who prefer to reinvest the profit back into the company.

Change of Capital Structure

Another frequent reason for an IPO is the desire to change the capital structure of the company. In order for a company to be attractive to investors, it needs to have a certain amount of equity. If the founders cannot raise the necessary funds themselves, going public is the solution. Moreover, the division of capital into tradable shares also allows the involvement of management or employees in the company. As co-owners, these people have a greater incentive to make an effort and generate profits.

Increase Visibility and Clarify Succession

Some owners also decide to go public to increase the visibility of their company. Because IPOs are often reported in the media, not only investors but also potential new customers can be attracted. In certain cases, the IPO serves to facilitate company succession. By dividing the equity into many shares, it becomes easier to find investors and sell the company. The new owners then only have to raise a fraction of the company's value.

All that glitters is not gold

But the IPO also entails obligations. Companies listed on a stock exchange must pay fees for their stocks to be traded there. Moreover, exchanges usually demand more detailed accounting than the law requires. As a result, the company's costs increase. Last but not least, the equity investors themselves also need to be taken care of. The company is obligated to hold general meetings and fulfill the information claims of its investors.

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