New Obligations

New Obligations

When going public, a company faces certain new obligations, such as:

Reorganisation of the company

Significant reorganization of corporate matters may be required before an initial public offering. This "housekeeping" process could require changes which are necessary for the Securities and Exchange Commission registration, advisable from a tax, corporate or timing viewpoint, or easier to accomplish while the company is still private.

Disclosure of Information

The management is required to disclose certain company information to the general public. Executive compensation, related party transactions, competitive positions, related affiliates, significant customers and suppliers, among other things, have to be published and updated quarterly or annually. Business Secrets are excluded, but a public company definitely shares more internals with the public than a private company.

Limited flexibility

The company may lose some flexibility in managing its affairs, particularly when the Board of Directors or a Shareholders' Meeting must approve major actions. Furthermore, most stock exchanges require a certain number of "external" directors.

Shareholder Value and Public Life

The company must continue to keep shareholders informed about the company's business operations, financial condition, new obligations and management. The management needs to maintain and increase shareholder value, investors expect ever increasing earnings, which may induce to short-term business decisions rather than long-term considerations. The share price exposes the performance of the management on a daily basis to shareholders, analysts and the general public.

Expenditure

A public offering will take substantial time and money to accomplish, and it will require additional ongoing expenses of being a public company, like annual listing fees, investor relations and PR, quarterly and annual reporting, shareholders' meetings and others.