Question

What are future tax opportunities and obstacles for a company looking to go public with an IPO in the next five years. Use the new tax law changes, 2019

Answer 1

An initial public offering (IPO) is the first sale of stock by a company. Small companies looking to further the growth of their company often use an IPO as a way to generate the capital needed to expand.

Opportunities and obstacles

As said earlier, the financial benefit in the form of raising capital is the most distinct advantage. Capital can be used to fund research and development (R&D), fund capital expenditure, or even used to pay off existing debt.

Another advantage is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers. Subsequently, this may lead to an increase in market share for the company. An IPO also may be used by founding individuals as an exit strategy. Many venture capitalists have used IPOs to cash in on successful companies that they helped start-up.

Even with the benefits of an IPO, public companies often face several disadvantages that may make them think twice about going public. One of the most important changes is the need for added disclosure for investors. In addition, public companies are regulated by the Securities Exchange Act of 1934 in regard to periodic financial reporting, which may be difficult for newer public companies. They must also meet other rules and regulations that are monitored by the Securities and Exchange Commission

More importantly, especially for smaller companies, is that the cost of complying with regulatory requirements can be very high. These costs have only increased with the advent of the Sarbanes-Oxley Act.2 Some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments, and accounting oversight committees.

• In order to become an IPO, a company must be able to pay for the generation of financial reporting documents, audit fees, investor relations departments, and accounting oversight committees.
• IPOs often generate publicity by making their products known to a wider potential swath of customers, but taking a company public is a huge risk.
• Smaller businesses may find it difficult to afford the time and money it takes to become an IPO.
• Privately held companies have more autonomy than public ones