The Disadvantages

● Shareholder value management

To fully realize the benefits of going public, management needs to maintain and then increase shareholder value. Shareholder value is much more than just the market price of the company's stock. The price-earning and dividend ratios, earnings per share and overall liquidity of the company's stock are key factors in investors' determination of shareholder value. Shareholder value will be scrutinized versus your competitors.

The effects on the company's stock price will be a factor in management decisions. The investors will expect quarterly profits that are consistently higher than those of the prior year's quarter or prior quarter if the company's business is not seasonal. The pressure to maintain this earnings trend sometimes results in delays and cancellations of necessary research and development or other long-term expenditures and often distracts management from focusing on the company's mission (i.e., satisfying customers). This potential problem can result in the sacrifice of long-term projects for short-term earnings results.

The stock price for some industries also reacts to key performance indicators of not only your company but of suppliers and competitors. The company must have a good communications program to keep investors informed and highlight the value of the company.

● Life in a fishbowl

When a company is publicly owned, the public has a right to know some of its most closely guarded information. Management is required to disclose executive compensation including fringe benefits, related-party transactions, competitive positions, related affiliates, significant customers, and suppliers, among other things. This information is required in the initial registration statement and it is updated at least annually. Management will need to take into account the practical and legal considerations of being a public company before making any significant business decisions. As an example, a major decision or event could require the filing of a descriptive report with the SEC, a press release, or a proxy statement for a vote by shareholders.

● Expenses

The expenses incurred with the initial public offering include the underwriters' commissions, filing fees, legal fees, accounting fees, printing expenses, and various out-of-pocket expenses. The underwriters' commission is generally seven percent. For speculative offerings it may be higher. Out-of-pocket expenses can range between $175,000 and $500,000. In addition, the ongoing expenses of being a public company, depending upon the company's circumstances, can be significant (e.g., annual listing fees, public relations, investor relations, quarterly reporting, annual audit, annual report, shareholders' meetings, etc.).

● Loss of control

Depending on the size of the initial and subsequent offerings, the resulting ownership dissolution may cause the original owners to lose their controlling interest in the company.

Before deciding to go public, you should weigh the advantages and disadvantages in light of the strategic plans and goals you have for your company. We also encourage you to discuss the matter with investment bankers, your attorney, accountants, other professional advisers, and executives of other companies that have gone public in recent years.