GonnaBeBig has been in business for five years, and has sales approaching $50 mi

Question

GonnaBeBig has been in business for five years, and has sales approaching $50 million annually. They have decided that they want to “go public.” They are currently a subchapter S corporation. Their stock is owned by a total of 53 investors.

Why do we refer to them as a “private” company currently? What does it mean to “go public”?

What legal form does their company need to be to go public? Why?

What are some reasons why they would want to go public?

i.What advantages does being public hold for their investors?

ii.What advantages does being public offer to the company?

Explanation / Answer

A. The shares of Gonnabebig are held privately by a group of investors and being a subchapter S corporation which is taxed as a corporation rather than a partnership firm identifies Gonnabebig as a private company.

Going public means the shares held by these investors are diluted to the public through issue of Initial Public Offers quoted with a issue price. The number of shareholders increase with easy transfer of shares.

B. The private company needs minimum pre tax earnings of 10 million dollars over the last three years to be eligible for listing and trading in the stock exchanges. The company should have financial statements and audits done the finance personnel. These are the essential legal requirements for the company to go public.

C. Investors will have increased access to finance capital for investing in the company raised through IPO. The valuation of holdings of an investor rises when the company goes public increasing his networth overnight.

Company can utilize the funds in expansion and conduct major business plans. The shares can be easily transferred and it can raise capital through different sources being a public limited company.

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