Explore why companies go public, the IPO process, and what it means for businesses and investors in clear, straightforward terms.
Last updated on: February 05, 2026
Going public is a significant milestone in a company’s life cycle. It involves transitioning from a privately held entity to a publicly traded company by offering shares to the general public through an Initial Public Offering (IPO). This decision is driven by multiple strategic, financial, and operational factors. This comprehensive guide explores why companies go public, outlining the key motivations, the IPO process, and the consequences of listing on stock exchanges. It aims to provide readers, especially beginners and those with basic understanding, with clear insights into this important corporate event.
Companies choose to go public for several important reasons that support growth and business objectives.
One of the primary motivations for going public is to raise substantial capital to fund expansion, new projects, or reduce debt without incurring additional liabilities.
Being listed on a recognised stock exchange boosts the company’s profile, enhancing credibility with customers, suppliers, and partners.
Going public offers liquidity to early investors, founders, and employees holding shares, enabling them to realise gains or diversify their holdings.
Public companies can use their shares as currency to acquire other businesses or enter into strategic collaborations more effectively.
Public companies can implement employee stock option plans (ESOPs), incentivising and retaining talent by aligning employee interests with company performance.
Public companies must adhere to strict disclosure and governance standards, which, while demanding, increase investor trust and market confidence.
The company’s board of directors and shareholders must approve the decision to go public.
Companies appoint investment banks or underwriters to manage the IPO (Initial Public Offering) process.
A Draft Red Herring Prospectus (DRHP) is filed with the regulatory authority (like SEBI in India), outlining financials, risks, and business details.
Legal, financial, and business audits are conducted to assess the company’s readiness and determine share pricing.
The company conducts roadshows and promotional activities to attract potential investors.
After the IPO is complete and shares are allotted, the company gets listed on a recognized stock exchange like NSE or BSE.
Going public entails significant responsibilities and operational changes.
Public companies must provide regular financial reports, disclose material information, and comply with corporate governance norms.
Being public exposes companies to continuous scrutiny from analysts, media, and shareholders, requiring transparent communication.
Listing demands stronger governance frameworks, often resulting in the appointment of independent directors and audit committees.
Public companies may experience fluctuations in share prices, influenced by market conditions and external factors, which are often beyond the control of the company.
Despite challenges, going public offers tangible advantages to companies.
Public markets provide access to a broad investor base, facilitating easier capital mobilisation in the future.
Listing enhances brand recognition and trust among stakeholders, including customers, suppliers, and financial institutions.
Public companies can raise additional capital through follow-on public offerings or debt issuance more efficiently.
Offering equity incentives helps align employee performance with company growth, boosting morale and retention.
Listing is not without drawbacks, which companies must carefully consider.
Maintaining compliance involves significant administrative costs, legal expenses, and disclosure requirements.
The need to report quarterly financials can lead to short-term focus, potentially impacting long-term strategy.
Public shareholders gain influence, diluting founders’ control and potentially affecting decision-making.
Share prices can be volatile, influenced by external factors beyond company control, affecting reputation and valuation.
Going public is a strategic decision that enables companies to access capital, enhance their market presence, and achieve growth objectives. While it brings benefits such as liquidity and credibility, it also imposes regulatory responsibilities and market pressures. Understanding these factors helps stakeholders appreciate the significance and impact of public listings.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Reviewer
Going public means a company offers its shares to the general public and gets listed on a stock exchange.
Companies go public primarily to raise capital, improve visibility, provide liquidity, and enable growth.
An IPO is the process where a private company offers shares to the public for the first time through a regulated stock exchange.
Benefits may include access to capital, enhanced credibility, and improved ability to attract investors and employees.
Risks include regulatory costs, market volatility, loss of control, and pressure to deliver short-term results.