What are the drawbacks for a company in filing an IPO?

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Short Answer

There are many drawbacks such as up-front costs, liability augmentation, extensive decision-making processes, reporting costs increase exponentially, etc. These are just a few; based on the company's performance, many other drawbacks might arise.

Detailed Answer

IPO is a fantastic way to raise the company's capital and even have an additional source of income via trading. It helps traders and investors reap some of the many benefits of the company and have long-term benefits based on the company's performance. However, looking at the downsides of having an IPO, there are plenty. While many might refrain from this, it's the dark reality that one has to accept. Therefore, the drawbacks of filing for an IPO is given as follows.

Drawbacks of filling for an IPO

• The cost of reporting goes high

Any publicly-traded company has to provide quarterly and yearly statements about profits, losses, and operational costs. Moreover, reporting all of this and having the company audited on a regular interval basis does require exponential capital based on the company's market cap. Moreover, it's quite a laborious step where a great deed of time, investments, and operations must be invested in getting the reports right.

• Upfront soaring costs

If you're under the notion that you would have to file a paper and then your company is publicly traded, you're under a false commotion. There are so many up-front costs in filing for an IPO. These include account fees, auditing fees, commission cheques, advertising costs, printing charges, and so much more. In addition, several smaller charges are imposed, which then add up to be greater in the long term. Moreover, you have to upgrade your in-house management and accounting department to manage this. If not, get ready to pay a third-party company that might charge a bomb for these services.

• Laborious decision-making process

For every decision you need to take, you need your shareholder's permission as they have equally invested in the company. It's quite a difficult task as the decisions that would take hardly hours to finalize would take days, if not weeks, to pull through because you have to consider every shareholder's opinion to keep them happy.

• Augments liability

If you file for an IPO, then there are certain things like profits, loss, operation costs, revenue generated, and so on that have to be reported. If you underreport or over-report, then there are higher chances that you would be scrutinized by the shareholders, which might cause a devaluation of your company.

Bottom line

It's quite a lucrative process of going public, but then the drawbacks as given above would topple the company from striding in the right direction. Once an IPO is issued and the company starts trading publicly, the decision-making process, operation costs, and even the steady giving back of profits are a few of the risks the company would have to comply with if they were to file for an IPO.

Tagged With: ipoipo filinginitial public offeringfiling ipo
Categories: IPO Basics
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