Question

Most firms/organizations start off small and are privately financed; however, as they grow, these organizations will face the issue of obtaining additional financing. One way is to “go public.” Discuss the steps which an organization must complete to do this. (answer needs to be 150 words or more)

Answer 1

When any organisation is started, it is started with a capital which is either funded from the personal savings of the individual or the partners as a whole or through the bank borrowings secured by the personal guarantees and securities of the promoters and the directors of the company. But every person have an upper limit upto which he can take loans on his or her personal networth. Moreover, sometimes the project has long moratorium period upto which business will not make any additional earning. And if the same is funded through loans the interest during this moratorium period will left the project non feasible. So the companies try to sell the share in the company through issue of shares. As equity capital is a interest free capital it helps the business to invest in new businesses with long moratorium period and in return the investors are rewarded with huge dividends in lieu of the Risk they have taken by giving interest free amount to the company. So the risk reward favour principle works. To go public the company firstly need to fulfill the basic criteria of a stock exchange to get itself listed. After getting the node of the Securities Board of the country the company will file the prospectus in which the company will tell the public about the project and end use of the proceeds collected through the Public issue. The general public and the angel investors will apply for the shares through application. The lucky ones will be alloted shares on pro rata basis and same will be listed on the stock exchange.