Question

An Initial Public Offering (IPO) is a major milestone for a company. This is a very expensive and time-consuming process. It does not come without a lot of forethought and judicial weighing of the pros and cons. We will start this conversation by looking at some of the reasons why a company would decide to take the steps to become a publicly traded corporation. What pros and cons have to be weighed?

Instructions - Use the numbers in the instructions to organize your post and ensure that you meet all requirements.

1. The #1 benefit of an IPO is the capital that is raised. List one additional way a company would benefit from an IPO. Explain in one paragraph.

2. List one use of additional capital. Explain the benefit in one paragraph.

3. Many changes in reporting standards have been enacted as a result of financial scandals. Identify one specific change in reporting standards or requirements for publicly traded companies and explain why this is important. Identify the change by the title of the act or section number.

NOTE: The Sarbanes-Oxley Act is the most frequently mentioned changed. It contains many individual provisions. Break it down to one provision that has not been mentioned by a classmate. There are a number of more recent changes to select from as well.

Answer 1

Corporate Finance Advantages for IPO

The primary objective of an IPO is to raise capital for a business. Although, It can also come with other advantages for Business, stated as here under:

• The company gets access to investment from the entire investing public to raise capital.
• It assists in facilitating easier acquisition deals (share conversions). Can also be easier to establish the value of an acquisition target if it has publicly listed shares.
• It assists in Increasing transparency that comes with required quarterly reporting can usually help a company receive more favourable credit borrowing terms than as a private company.
• A public company can raise additional funds in the future through secondary offerings because it already has access to the public markets through the IPO.
• Public companies can attract and retain better management and skilled employees through liquid stock equity participation (e.g. ESOPs). Many companies will compensate executives or other employees through stock compensation at the IPO.
• It also helps in increasing the company’s exposure, prestige, and public image, which can help the company’s sales and profits.

Capital additions may take the form of adding new parts or features that are expected to increase the useful life of potential of an asset, or may involve adding new assets to increase production or capacity.

Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002

1. Companies would be required to disclose the number and names of persons that the board of directors has determined to be the "financial experts" serving on the company's audit committee and whether they are independent of management, and if not, an explanation of why they are not.
2. Companies would be required to include an annual internal control report of management stating the following: management's responsibilities for establishing and maintaining adequate internal controls and procedures for financial reporting for the company; management's conclusions about the effectiveness of the company's internal controls and procedures for financial reporting as of the end of the company's most recent fiscal year; and that the company's registered public accounting firm has attested to, and reported on, management's evaluation of the company's internal controls and procedures for financial reporting.
3. Companies would be required to disclose whether they have adopted a code of ethics that covers their principal executive officers and senior financial officers, or if they have not, an explanation of why they have not, as well as amendments to, and waivers from, the code of ethics relating to any of those officers.

These proposed rules would implement the requirements in Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002.