Recently, i wrote about the advantages of taking a company public but as you know, whatsoever has an advantage has a corresponding disadvantage. Though you might call them disadvantages, i prefer to call them challenges.
I hope you know that forming a public corporation is the same as taking a company public.
Below are 3 reasons why most entrepreneurs shy away from forming a public corporation or taking their company public.
1. The management structure in a public corporation is usually decentralized so therefore the managers are in most cases not the business owners. Since they are managers, they may not be motivated towards the company’s goal and vision as the entrepreneur that created the business.
While the entrepreneur may be driven by the desire to fill a need and build a successful business, the manager may be driven by bonus, incentives, job title, promotion and the salary, not the entrepreneur’s vision.
2. Taking a company public is very expensive due to legal fees, meeting up with the demand of government agencies and regulatory bodies and also the cost of undertaking an IPO (Initial Public Offer) adds to the burden.
3. When you take your company public, you now have to serve three bodies. You will now have to serve your customers, government agencies or regulatory and the investors. This might be too cumbersome or stressful for some entrepreneurs to handle.
4. Public Corporations are subjected to more legal restrictions than other type of entities.
5. When you take a company public, your company becomes subjected to stiff accounting rules and principles.
6. When you form a public corporation, your business affairs and financial statements can’t be kept secret any longer. It must be published to the public at large.
7. Public corporations are subjected to heavy corporate tax. They pay both federal and state tax. Public corporations are also subjected to double taxation. They are taxed based on their earnings and the shareholders are taxed based on their dividend.
In conclusion, i want you to also know that public corporations face severe penalties if they go wrong or mis-inform the public, so professionalism and transparency are the rules of the game. However, if you are daring, you might decide to take your company public. It is all part of the challenges of entrepreneurship.
Till i come your way again, keep your entrepreneurial spirit strong.
