Investing Basics: What Happens When a Company Goes Public

wall streetDo you know what happens when a company goes public?

WiseGeek.com defines it this way:

“When a company is said to “go public,” it is releasing privately held share for sale to members of the public for the first time. Private companies are held and controlled by a limited number of shareholders, such as members of the same family. Public companies have shares available for purchase by anyone, giving members of the general public an opportunity to own a share and have a vote in company decisions.”

You may wonder just why a private company would go public and allow members of the public to buy shares if they are already doing fine. Typically, companies go public because they need more resources: whether it’s money for new projects and products or a need to save more, private companies go public because they know they can do more with additional resources than they can in their current state.

However, they also know that offering shares to the public changes the way a company conducts its business. There comes a point in time when some private companies decide that it is worth it to trade some of their control for more money. Once a company goes public, it has more people examining its decisions and there are more people who get to have a say in the decisions that are made.

This is a complex topic but learning the basics is an important step towards understanding more about what it means to invest your money with a company. While many people will tell you that when a company has its IPO (initial public offering), the shares are overpriced, there are sometimes good reasons to buy during an IPO. A Fee-Only financial advisor can be helpful if you want personalized advice and help deciding which kind of investments will be most beneficial for you.

© Clarity Financial Planning. Investing Basics: What Happens When a Company Goes Public is a post from: Bring Clarity to Your Finances™

About the author

Claire Emory, MBA, CFA, CFP®

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