Guide: Exit Your Business | Strategy Seven

Initial Public Offering

What is it?

An Initial Public Offering is the offering of shares of a private corporation to the public in a new stock issuance. Offering public shares allows a company to raise capital from public investors.

How does it work?

When a company goes public, all privately owned shares convert to public ownership. This essentially means that the existing shareholders’ shares become worth the public trading price. The transition from private to public ownership is typically a good time for initial investors to cash in on the returns they were expecting. These initial investors can also hold onto their shares in the public market and gradually sell them off for financial gain.

By transforming the private company into a public one, millions of investors have the opportunity to buy and sell shares which ultimately contribute capital to the company and its shareholders.

When is this relevant?

Typically, companies who experience enough growth to switch to publicly traded, reach a valuation of approximately $1 billion. This is what’s typically known as unicorn status. However, private companies who have experienced such growth (including overall profitability) without reaching $1 billion in revenue, can also qualify for an IPO. This typically depends on market competition and the company's ability to fulfill listing requirements.

Frequently Asked Questions

Do you have questions about exiting your business? You should consider checking out our Resource Navigator. It houses the contact information of 400 of our most helpful partners from across the state who provide free to low-cost assistance to Iowa entrepreneurs and small business owners.

Q: Do you have to be a big company to go public?

A: Not necessarily. Traditionally speaking, larger companies may decide to become larger if there is a market for them to grab ahold of. However, there are other types of companies, like a Special Purpose Acquisition Company, that is formed as a publicly traded company from the start.

Q: Is going public good for investors?

A: Typically speaking, yes. Taking a company public can make the current investors extremely wealthy if the stock is regarded as valuable. However, the current percentage of ownership breakdown could be lowered as thousands if not millions of shares of stock could be issued. 

Q: Would I still own shares of my company if I took it public?

A: This depends entirely on the ownership breakdown and structure of the company when it goes public.

 

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NOTICE: The information included on this website is to be used only as a guide. It is not intended to cover all provisions of the law or every taxpayer's specific circumstances.

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