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WHY GO PUBLIC?
Are
there any advantages to be gained by establishing your business
as a public company? The answer is that there are in fact
significant advantages in going public. One of the most
important is that going public enables an objective valuation of
a company.
When
a company goes public, there is a substantial increase in value
to its owners/ founding shareholders. In the first place, it is
easier to arrive at a reasonably objective valuation for a
public company than it is for a private company. That by itself
is of value. A company has both tangible and intangible value.
Tangible value refers to what the company is worth financially.
There are several ways of determining this. However, the most
frequently employed method for a listed company is by its Price
to Earnings or P/E ratio, within the context of a company's
estimated future growth prospects.
 Also
known as the multiple, the P/E ratio makes is possible to
identify readily how much investors are willing to pay for a
company's earning power based on past performance and how much
they would likely pay at some future time, when the P/E has been
based on projected earnings after it’s expansion plans are put
into affect.
Other methods of valuation employed with privately-held
companies include the assessment of market value of balance
sheet assets; the discounted cash flow method, both of which may
also apply to a public company and the capital market comparison
method, by which a privately-held company is compared with a
public company of a similar size and industry grouping and
estimates drawn. These methods all include a level of
uncertainty and negotiation between buyer and seller that would
not arise under the Price/Earnings approach.
A
company's intangible value results from an estimate of the fair
market value of assets such as goodwill, customer lists,
technical expertise, intellectual property and trade or brand
name. In addition, an owner's sentimental value often looms
large when trying to arrive at a value for a private company's
intangible assets.
According to some Capital Markets strategists, private companies
fortunate enough to find a buyer usually sell at 2-3 times
earnings while public companies are generally valued at closer
to 8-10 times earnings and often much, much higher.
When should a company go public?
The
best candidates for going public are companies that have a
pattern of growth and can anticipate continued future growth.
However, historical growth is not the only route to the capital
markets. If a start-up can win investors' confidence by virtue
of the integrity of its promoters, the known skills or calibre
of its management team or by the anticipated success of its
business approach and its products, then the market can
accommodate such a start-up."
 "Preparedness
is the key to becoming a public company". A company must be
prepared to be transparent, it must be prepared to keep the
investing public informed and above all, its accounts must be
accurate, up-to-date and in place."
When
the necessary groundwork is in place, the best time to go public
is when the investors are likely to be interested. This would
coincide with periods of heightened public interest in the stock
market for example, during a bull market. The required planning
and preparation should also precede a public offering. Perhaps
the most important pre-condition for going public, is that the
company's founders and owners must take a decision that their
future, their company's future and the nation's future can best
be served by sharing ownership with the public.
There is a view that when companies share ownership through
public offerings, that this encourages their own customers to
save and invest, thereby assisting them to participate in the
process of wealth creation and economic growth. While the
requirements for going public are exacting and require higher
standards of disclosure and transparency, the company will be
better off in the long run. The company's ability to compete and
expand will be enhanced through its improved management
practices and its strengthened capital structure. As a result,
the company will enjoy greater confidence among policymakers and
the general public.
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There
are many reasons why owners or managers of the company may want to take it
public. Among major advantages of being a public entity are:
Liquidity and
mobility of capital. The shares of
the public company can be bought and sold in the open market (listed Company)
or through the Company’s share registry via private treaty (Un-listed
Company). There is rarely a market for shares of a private company. In
comparison the capital invested in shares of a public company can be more
easily channeled to the markets where returns are higher. 
Company Structures Overview
