Fact Scenario
Jake had a real knack for developing computer programs. He started a business in his garage. Jake developed a unique technology that was quite marketable and much sought after by consumers. Eventually, Jake moved into an office building, hired additional staff, and incorporated his business. The new business was called Jake Developments, Inc. In time, Jake required additional funds to develop new products. Instead of incurring debt, Jake decided to offer shares of stock in Jake Developments, Inc. to the public.
What Does It Mean To Go Public?
When a corporation "goes public," it means that outside investors may obtain shares of stock in the corporation. In order to go public, a corporation's stock must be registered with the United States Securities and Exchange Commission (SEC). After the registration process is complete and the SEC has made a thorough investigation of the corporation's application for registration, the corporation may make an initial public offering (IPO) of shares of its stock.
Why Would A Corporation Make The Decision To Go Public?
Usually, a corporation goes public when it needs to raise additional capital. The capital raised by a corporation in allowing outside investors to purchase shares of its stock does not need to be repaid.
Are There Any Drawbacks?
In and of itself, the process of going public can involve a significant expenditure of funds. Furthermore, by virtue of the fact that outside investors obtain partial ownership of the corporation, the ownership interest of the original owner or owners in the corporation becomes smaller.
General Considerations
It is difficult to predict how the stock of a corporation will perform at the time of an IPO. Some questions an investor may ask are:
- Why has the corporation decided to go public?
- What is the corporation's current financial situation?
- What can I learn about the corporation's management?
- What do I know about the corporation's plans for the future?
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