Table of Content

Page numbers

Abstract
Acknowledgements ii
Executive Summary…………………………………………………….........2
Chapter 1: Introduction ………………………………………………………3
Chapter 2: Problem Statement........................................................................4
Chapter 3: Project Objectives ........................................................................7
Chapter 4: Methodology……………………………………………………..
Chapter 5: Literature review ..........................................................................8
Chapter 5: Important /Benefits of the studies ..............................................30
Finding: …………………………………………………………………..40
Bibliography ................................................................................................43
References....................................................................................................
Appendix 1: Interview questions to the company..................................
Appendix 2: Interview questions to the company..................................
Introduction
Abstract:

© thedailystar.net, 2010. All Rights Reserved

Why list on a stock exchange?

A.F.M. Mainul Ahsan

.....................................................

There is a total of 1,25,929 firms listed with the office of the Register of Joint Stock
Companies and Firms in Bangladesh. Among 1,25,929 firms, 81,888 are private companies,
1,417 are public companies, 125 are foreign companies, and
32,295 are partnership firms. However, only about 266 firms
are listed on the Dhaka Stock Exchange (DSE). So it's clear
that firms have neglected the fact that getting listed on the stock market could be
tremendously beneficial to their business in the long run. What could be the benefits of
going public?

A need for low-cost capital should be the main motive for a company to get listed on Stock
Exchange, for instance, Dhaka Stock Exchange (DSE). Stock market listing is one of several
sources of capital leveraging, but also happens to be one of the widest and most accessible
forms of investment for both investors and businesses. A listing on the burses allows a
company to raise capital and use it to finance investment and expansion or even to pay off
existing debt.

The primary gain of raising capital from the market is that it eliminates a number of
intermediation expenses apparent in the other forms of capital raising. As a result, the
market endows companies with capital at a cheaper cost. For example, for a long-term
industrial loan, a firm might has to pay more than 15% as interest, where a 10% dividend
in the DSE is considered a modest return in the stock market, and thus the firm will be able
to save 5% on the cost of the capital. And, a lower cost of capital leads to higher market
value for the firm.

Even after getting listed, a company can further boost up capital from the market, through
the issue of fresh securities such as rights issues or through the issue of a new nature of
securities.

By getting listed on a stock exchange, a company will gain market exposure to a broader
membership of the financial community. And, the superior profile, tied with larger lucidity,
could add to the company's capacity to have access to traditional sources of capital in
significantly reduced price. Hence, a listed company can access to all sort of capital with
minimal cost compared to a private company not listed on the stock exchange.

Furthermore, being listed on the DSE or in a stock exchange means that a firm has met
required standards set by the proper authorities, e.g. Securities and Exchange Commission
(SEC). This can add credibility to a business through positive customer perception of value
in a company and its products. Research shows that presence in a burse enhances
consumer awareness, confidence, and also improves a company's corporate standing. Also,
in addition to the credibility resulting from the indirect endorsement from the listing, the
stock exchange puts forward companies a right of entry to a wide-ranging and mounting
investor base, which contains both entity investors and plentiful domestic and foreign
institutional investors.

This enables the company to embark on expansion of the companies activities and grow in
the future in domestic and foreign market. Listing is likely to enhance the visibility and
recognition of a company that may help product identification and the marketing efforts of
the company. Visibility refers to the extent to which analysts follow a firm's stock, and the
amount of a firm's news coverage.

Listing on DSE or any other stock exchange facilitates companies to ascertain a price for
their shares since it can be traded in the stock exchange and has a performance signal as
opposed to a private company not listed. If a company perform well in its business arena,
price of it shares will increase, and vise versa. For instance, though Singer Bangladesh's net
asset value per share is Tk.279, market price for its share is Tk.2,973! In case of square
Pharmaceuticals Ltd., market price for each share is Tk.3,065 while net asset value per
share is Tk.905. Because of weak form efficiency of DSE, firms on Dhaka Stock exchange
could get over-valued even though they perform poorly!

Because of lock-in rule, i.e., restrictions on selling entrepreneur's existing shares for 3
years, immediate cash-out is not allowed in Dhaka Stock Exchange (DSE). After lock-in
period, entrepreneurs of the firm can take their money out of the firm and invest in another
opportunity, if they want to. In addition, you can motivate employees offering extra
incentives by granting share options since owner feel much more obligation than an
employee.

Moreover, having your firm traded on the DSE or any other stock exchange gives you
greater potential for acquiring other businesses, because you can offer shares as well as
cash. So, your firm's shares will also work as a form of currency to acquire other potential
businesses. An equity listing may also help in improving the relationship with the
government and financial community.

A listing on a burse can also give the impression that the company is a major player in
domestic business and will enhance the prestige and valuation of goodwill of the company.
A listed firm has the opportunity to be included in an index, for instance, DSE 20 index.
Portfolio managers typically invest pooled funds into a portfolio with the same weighting,
which undoubtedly creates additional demand for the shares of the company and thus
increases the price of the shares.

Also, being included in an index raises an issuer's visibility and profile, and can improve
investor awareness. If you are still not convinced to get listed on the DSE or on a stock
exchange, here is another one: the income tax rate differential between listed and non-
listed companies is 10 percent. According to the budget statement 2009-10, publicly trading
companies are paying 27.5% tax whereas non-public companies are in 37.5% tax bracket.

It is true that listed firms will be subject to intense rules and regulations by different
government agencies, for instance, SEC. When a company moves from private ownership to
public, much information must be disclosed, for instance, salaries, transactions with
management, sales, profits, competitive position, mode of operation and other material
information. However, increased disclosure could be a blessing since it increases
transparence within the firm. Greater transparency increases the willingness of international
and local investors to commit capital. Moreover, the enhanced transparency may influence
value through pure cash-flow effects by reducing agency costs. For instance, transparency
reduces the potential diversion of a firm's cash flows to managers and controlling
shareholders, and, as a result, increases value of the firm. Therefore, the higher the agency
cost, the more the potential benefit from disclosure. Since agency cost is much higher in the
government owned firms, benefits from listed on the stock exchange will also be higher for
those firms.

However, going public is costly both in terms of money and time. Costs related to legal,
printing, audited financial reports to shareholders, public relations, and manpower devoted
to preparing for a public offering can be substantial. Red-tapism in government offices in
Bangladesh is another hassle.

Moreover, after getting listed on a stock exchange, management of the company may lose
some flexibility in managing the company's affairs, particularly with actions, which require
shareholders' approval. Some might say that negative news about the stock market on the
media, and manipulation extravaganza of 1996, mainly influence firms not to get listed.
However, I found it fascinating that the main reason is most businesses are unaware of
benefits of getting listed in the stock market. However, truth is benefits of getting listed on
a stock exchange enormously out-weigh costs.

One might ask that why his firm should get listed in a Bangladeshi burse instead of in a
highly liquid market like India, London or NYSE. While stock markets in the developed part
of the world is still either struggling or on a recovery stage, stock markets in Bangladesh
are doing pretty good. For instance, since October 2007, Dow index declined 25%.
However, in 2009, DSE General Index rose 59%, and DSE 20 indexes went up 12%.
According to the International Monetary Fund (IMF), group of seven rich countries is
expected to show a 1.3% rise in gross domestic product in 2010, compared to 5.1%
economic growth in emerging economies. Investors see the BRIC markets, i.e. Brazil,
Russia, India and China, as oversaturated and overpriced. Instead, they are looking for
other markets in which to put their money to work. Surely emerging markets like
Bangladesh are going to be the next destination of those concerned investors.

It is obvious from the above discussion stock exchange listing of a company has many
durable benefits to the company in terms of its potential to grow and expand than a private
limited company. Listing a firm on an exchange is a great idea for a business seeking
improved market awareness, greater potential for capital investment, enhancements to
brand equity and negotiating influence etc. However, listing on an exchange should
probably be in line with or in accordance with business strategy, otherwise the listing may
be premature or unnecessary.

The author is a PhD Student, Texas Tech University, Texas.

Going Public or staying Private

Some believes that going public provides wider scope for fund generation which is a strong tool
to compete in the world markets. Other believes that public ownership comes at piece. So, it’s a
big dilemma whether a firm should go for public held or remain private.
Motivates for staying Private
Equity finance may simplify not be available through the public route. This may be because the
company is too small or because it does not have an established financial track record.
Alternatively may have too high a business risk profile to be attractive to a wide investor base
through a public share offering. Being private a company enjoys relax from the strict bindings of
enormous reporting and disclosure requirements of the SEC.
Advantages for staying private
This saves the cost and management time involved in maintaining a public listing. The senior
leadership team can focus more on improving business’s competitive positioning in the market
place. Internal and external assurance, legal professionals and consulting professionals can work
on reporting requirement by the private investor. Additionally, by remaining private, the
company is less exposed to predatory attacks by those wishing to take it over. Moreover,
abstaining from reporting to a large group of shareholders and disclosing information publicly, a
company can be able to keep its business plans and finance private.
Advantages of going public
For some companies, the drawbacks of private ownership outweigh the lure of relaxing from
reporting and disclosure requirements by SEC. This is evidence by the fact that, most of the
largest and most powerful companies in the world were created by raising capital in the public
market. By selling all or part of a business in a public offering, companies that go public receive
an intermediate influx of capital. Becoming a publicly held company provides the opportunity of
accessing to large amounts of capital that is otherwise impossible by remaining a private held
company. Stocks of publicly held companies are highly liquid and that’s why can easily be sold
and bought. In many countries, publicly held companies enjoys a tax benefits which is not
available for privately owned companies.

Family Business Going Public - Why Go

Public? Why Not?
Many family businesses take the decision of going public at some stage in their life to be able to
secure financial resources for the business expansion or to give its shareholders a way of selling
their shares in case they prefer to cash them in. Going public is a complex process that requires
careful consideration of the alternatives, plenty of preparation from the board and the
management, and extensive outside specialists’ advice. Going public is also a decision that
presents many advantages and disadvantages to the family business.

Advantages of Going Public for a Family Business

Going public may offer several advantages to family businesses and their shareholders,
including:

- Improved Marketability of Shares: This makes it possible for family shareholders to sell their
shares at the prevailing stock price in the open market. It also makes it easier for shareholders to
use their shares as collateral to obtain loans. As a result, the improved marketability of the
company’s shares helps reduce family issues as it solves the liquidity needs for shareholders who
prefer to hold their wealth in assets other than their interest in the company.

- Improvement of the Company’s Financial Position: This is a direct result from selling the
company’s shares to the public. The stronger financial position makes it easier for the company
to seek loans and to negotiate the terms of these loans.

- Potential Increase in the Value of the Shares: Many family-owned companies that went
public saw their stock price rise above the initial estimation made by the investment banking
firm. This increase in value is partly due to the willingness of investors to pay a higher price for
the company’s stock because of its greater credibility as a public company, the improved
marketability of the shares, and the increased transparency of accounts.

- Greater Visibility: Going public gives family businesses increased prestige and visibility in the
market. Markets tend to perceive public companies as professionally managed and more
transparent (audited accounts and periodic publication of financial statements and performance
data). As a result, a family business that goes public might increase its visibility in the market.

Disadvantages of Going Public for a Family Business

Going public may also present potential disadvantages to family businesses. Some of these
disadvantages are:

- Loss of Privacy: This is probably the most unwelcome outcome of going public for family
businesses. Indeed, once public, the family business will have to reveal more information than
before, including: detailed financial statements and other performance measures, and any
advantages given to family members.

- Loss of Autonomy: This is a consequence of the arrival of new shareholders after the family
business goes public. Even in cases where the family remains a controlling shareholder, minority
shareholders have rights that will make it difficult for the original family members to operate
unfettered.

- Increased Liability: Public companies have a higher liability than their counterparts. For
example, public companies have to make sure that all the information that they provide to their
shareholders and to the market is accurate.

- Possibility of a Takeover: If enough shares have been issued to outsiders during the process of
going public, it could be possible for competitors or other investors to gain control over the
family business.

- Additional Costs: The initial cost of going public can be quite substantial. Some of the
potential components of this cost are: underwriter’s commission, auditing fees, legal fees, and
any registration costs. In addition, once public, the company will incur additional costs such as
audit fees, periodic disclosure of financial information costs, and any other compliance
requirements’ fees for public companies.

[1] Monica Wagen, “Perspectives on Going Public”, Family Business, Spring 1996; Fred
Neubauer and Alden G.Lank, The Family Business: its Governance for Sustainability (Routledge
New York, 1998).

[2] Fred Neubauer and Alden G.Lank, The Family Business: its Governance for Sustainability

http://www.google.com.bd/search?
q=opportunities+of+private+limited+company+bangladesh&hl=en&ei=D39rTJurCcHJc
ev24HM&start=10&sa=N

Advantages Of Public Company

Access to Capital
A public offering of stock can vary from $500,000 to over $1 billion. In 1999, 544 companies
completed an IPO(Initial Public Offering). The total capital raised from these offerings was
$23.6 billion. By offering stock for sale to the public a company can access a substantial source
of corporate funding.
If a company needs to raise capital, it can sell stock(equity) or it can it issue bonds(debt
securities). An initial equity offering can bring immediate proceeds to a company. These funds
may be used for a variety of purposes including; growth and expansion, retiring existing debt,
corporate marketing and development, acquisition capital and corporate diversity.
Once public, a company's financing alternatives are increased. A publicly traded company can
return to the public markets for additional capital via a bond or convertible bond issue or
secondary equity offering. A public status can also provide favorable terms for alternative
financing from public and private investors.
In general, public companies have a higher valuation than private enterprises.
Liquidity
To sell the stock of a private company, a stockholder must find another individual that is
interested in owning the shares. This is very difficult, especially for minority positions.
By going public, a company creates a market for its stock in which buyers and sellers participate.
In general, stock in a public company is much more liquid than stock in a private enterprise.
Liquidity is created for the investors, institutions, founders, owners and venture capital
professionals. Investors of the company may be able to buy or sell the stock more readily upon
completion of the public offering.
This liquidity can elevate the value of the corporation. The stock's liquidity is contingent on a
variety of factors including, registration rights, lock-up restrictions and holding periods. A public
company has greater opportunity to sell shares of stock to investors. Ownership of stock in a...

Assignment survey website:

http://www.oppapers.com/essays/Advantages-Public-Company/95583
http://www.oppapers.com/subjects/advantages-of-public-company-page1.html

Are Public Companies More Unethical Than Private Companies?

Public vs. Private
Do publicly held companies foster an environment conducive for committing criminal acts more
than privately held companies?

By XXX
MNGT 6000
Webster University

Purpose

The purpose of this paper is to examine and determine whether or not publicly traded companies
are more prone to foster an environment conducive for criminal acts than those of privately held
companies. Due to the enormity of the research, only companies owned in the United States will
be examined. Of course, a company is an inanimate object and therefore incapable of doing
something, let alone committing criminal acts. So the purpose of the study is really to examine if
public or private businesses tend to have more criminal activities emanate from them on behalf
of the executives working within. The executives are separated out from the rest of the employee
populace due to the fact that they are responsible for the direction and guidance of the company.
Given this fact, the executives are in essence, identified with the company. To clarify, an
executive is anyone in a position of President and above including board members. For the sake
of the study, when one of these executives is indicted or investigated for committing a criminal
act, this author will speak in terms of the corporations committing a criminal act. This is not
unusual when lawsuits are filed or indictments made. Articles and publications also tend to
equate executives with the companies they lead. Think Enron, Worldcom, and Arthur Anderson.

Premise

This author contends that after a thorough examination of the facts, it will be determined that
publicly held companies foster an environment conducive for committing criminal acts more
than privately held companies that operate within the United States. This author is basing this
premise on three factors: 1.) public companies exposure to the public eye, 2.) pressures from
Wall Street placed on public companies to perform and 3.) scrutiny from...

http://www.oppapers.com/essays/Public-Companies-More-Unethical-Than-Private/106450

Advantages Of Public-Private Partnership

Faster implementation
The allocation of design and construction responsibility to the private sector, combined with
payments linked to the availability of a service, provides significant incentives for the private
sector to deliver capital projects within shorter construction timeframes.

Better risk allocation

A core principle of any PPP is the allocation of risk to the party best able to manage it at least
cost. The aim is to optimise rather than maximise risk transfer, to ensure that best value is
achieved.

Acceleration of infrastructure provision

PPPs often allow the public sector to translate upfront capital expenditure into a flow of ongoing
service payments. This enables projects to proceed when the availability of public capital may be
constrained (either by public spending caps or annual budgeting cycles), thus bringing forward
much needed investment.

Reduced whole life costs

PPP projects which require operational and maintenance service provision provide the private
sector with strong incentives to minimise costs over the whole life of a project, something that is
inherently difficult to achieve within the constraints of traditional public sector budgeting.

Improved quality of service

International experience suggests that the quality of service achieved under a PPP is often better
than that achieved by traditional procurement. This may reflect the better integration of services
with supporting assets, improved economies of scale, the introduction of innovation in service
delivery, or the performance incentives and penalties typically included within a PPP contract.

Better incentives to perform

The allocation of project risk should incentivise a private sector contractor to improve its
management and performance on any given project. Under most PPP projects, full payment to
the private sector contractor will only occur if the required service standards are being met on an
ongoing basis.
http://www.oppapers.com/essays/Advantages-Public-Private-Partnership/116956

A public company or publicly traded company is a company that has permission to

offer its registered securities (stock, bonds, etc.) for sale to the general public, typically through a
stock exchange, or occasionally a company whose stock is traded over the counter (OTC) via
market makers who use non-exchange quotation services.

Securities of a public company

Usually, the securities of a publicly traded company are owned by many investors while the
shares of a privately held company are owned by relatively few shareholders. A company with
many shareholders is not necessarily a publicly traded company. In the United States, in some
instances, companies with over 500 shareholders may be required to report under the Securities
Exchange Act of 1934; companies that report under the 1934 Act are generally deemed public
companies. The first company to issue shares is thought to be the Dutch East India Company in
1601.

[edit] Advantages

It is able to raise funds and capital through the sale of its securities. This is the reason publicly
traded corporations are important: prior to their existence, it was very difficult to obtain large
amounts of capital for private enterprises.
In addition to being able to easily raise capital, publicly traded companies may issue their
securities as compensation for those that provide services to the company, such as their directors,
officers, and employees.

In comparison, privately held companies may also issue their securities as compensation for
services, but the recipients of those securities often have difficulty selling them on the open
market. Securities from a publicly traded company typically have an established fair market
value at any given time as determined by the price the security is sold for on the stock exchange
where the security is traded.

The financial media and city analysts will be able to access additional information about the
business.

[edit] Disadvantages

Privately held companies have several advantages over publicly traded companies. A privately
held company has no requirement to publicly disclose much, if any financial information; such
information could be useful to competitors. For example, publicly traded companies in the
United States are required by the SEC to submit an annual Form 10-K containing a
comprehensive detail of a company's performance. Privately held companies do not file form 10-
Ks; they leak less information to competitors, and they tend to be under less pressure to meet
quarterly projections for sales and profits.

Publicly traded companies are also required to spend more for certified public accountants and
other bureaucratic paperwork required of all publicly traded companies under government
regulations. For example, the Sarbanes-Oxley Act in the United States does not apply to
privately held companies. The money and income of the owners remains relatively unknown by
the public.

[edit] Stockholders

In the US, the Securities and Exchange Commission requires that firms whose stock is traded
publicly report their major stockholders each year.[1] The reports identify all institutional
shareholders (primarily, firms owning stock in other companies), all company officials who own
shares in their firm, and any individual or institution owning more than 5% of the firm’s stock.[1]

[edit] General Trend

The norm is for new companies, which are typically small, to be privately held. After a number
of years, if a company has grown significantly and is profitable, or has promising prospects,
there is often an initial public offering which converts the privately held company into a publicly
traded company or an acquisition of a company by publicly traded company.

Yet, some companies choose to remain privately held for a long period of time after maturity
into a profitable company. Investment banking firm Goldman Sachs and shipping services
provider United Parcel Service (UPS) are examples of companies which remained privately held
for many years after maturing into profitable companies.

[edit] Privatization

Less common, but not unknown, is for a public company to buy out its shareholders and become
private. This is typically done through a leveraged buyout and occurs when the buyers believe
the securities have been undervalued by investors. Publicly held companies can also become
privately held by having all of their shares purchased by an individual or small group of
investors, or by another company that is privately held.

In addition, one publicly traded company may be purchased by one or more publicly traded
company(ies), with the bought-out company either becoming a subsidiary or joint venture of the
purchaser(s) or ceasing to exist as a separate entity, its former shareholders receiving either cash,
shares in the purchasing company or a combination of both. When the compensation in question
is primarily shares then the deal is often considered a merger. Subsidiaries and joint ventures can
also be created de novo - this often happens in the financial sector. Subsidiaries and joint
ventures of publicly traded companies are not generally considered to be privately held
companies (even though they themselves are not publicly traded) and are generally subject to the
same reporting requirements as publicly traded companies. Finally, shares in subsidiaries and
joint ventures can be (re)-offered to the public at any time - firms that are sold in this manner are
called spin-outs.

Most industrialized jurisdictions have enacted laws and regulations that detail the steps that
prospective owners (public or private) must undertake if they wish to take over a publicly traded
corporation. This often entails the would-be buyer(s) making a formal offer for each share of the
company to shareholders. Normally some form of supermajority is required for this sort of the
offer to be approved, but once it happens then usually all shareholders are compelled to sell at
the agreed-upon price and the company either becomes a subsidiary, ceases to exist or becomes
privately held.

[edit] Trading and valuation

The shares of a publicly traded company are often traded on a stock exchange. The value or
"size" of a publicly traded company is called its market capitalization, a term which is often
shortened to "market cap". This is calculated as the number of shares outstanding (as opposed to
authorized but not necessarily issued) times the price per share. For example, a company with
two million shares outstanding and a price per share of US$40 would have a market
capitalization of US$80 million. However, a company's market capitalization should not be
confused with the fair market value of the company as a whole since the price per share are
influenced by other factors such as the volume of shares traded. Low trading volume can cause
artificially low prices for securities, due to investors being apprehensive of investing in a
company they perceive as possibly lacking liquidity.

For example, if all shareholders were to simultaneously try to sell their shares in the open
market, this would immediately create downward pressure on the price for which the share is
traded unless there were an equal number of buyers willing to purchase the security at the price
the sellers demand. So, sellers would have to either reduce their price or choose not to sell. Thus,
the number of trades in a given period of time, commonly referred to as the "volume" is
important when determining how well a company's market capitalization reflects true fair market
value of the company as a whole. The higher the volume, the more the fair market value of the
company is likely to be reflected by its market capitalization.

Another example of the impact of volume on the accuracy of market capitalization is when a
company has little or no trading activity and the market price is simply the price at which the
most recent trade took place, which could be days or weeks ago. This occurs when there are no
buyers willing to purchase the securities at the price being offered by the sellers and there are no
sellers willing to sell at the price the buyers are willing to pay. While this is rare when the
company is traded on a major stock exchange, it is not uncommon when shares are traded over-
the-counter (OTC). Since individual buyers and sellers need to incorporate news about the
company into their purchasing decisions, a security with an imbalance of buyers or sellers may
not feel the full effects of recent news.

http://en.wikipedia.org/wiki/Public_company

An initial public offering (IPO) is the first sale of stock by a company. Small companies
looking to further the growth of their company often use an IPO as a way to generate
the capital needed to expand. Although further expansion is a benefit to the company,
there are both advantages and disadvantages that arise when a company goes public.

There are many advantages for a company going public. As said earlier, the financial
benefit in the form of raising capital is the most distinct advantage. Capital can be used
to fund research and development, fund capital expenditure or even used to pay off
existing debt. Another advantage is an increased public awareness of the company
because IPOs often generate publicity by making their products known to a new group
of potential customers.

Subsequently this may lead to an increase in market share for the company. An IPO
also may be used by founding individuals as an exit strategy. Many venture capitalists
have used IPOs to cash in on successful companies that they helped start-up.

Even with the benefits of an IPO, public companies often face many new challenges as
well. One of the most important changes is the need for added disclosure for investors.
Public companies are regulated by the Securities Exchange Act of 1934 in regard to
periodic financial reporting, which may be difficult for newer public companies. They
must also meet other rules and regulations that are monitored by the Securities and
Exchange Commission (SEC). More importantly, especially for smaller companies, is
the cost of complying with regulatory requirements can be very high. These costs have
only increased with the advent of the Sarbanes-Oxley Act. Some of the additional costs
include the generation of financial reporting documents, audit fees, investor relation
departments and accounting oversight committees.
Public companies also are faced with the added pressure of the market which may
cause them to focus more on short-term results rather than long-term growth. The
actions of the company's management also become increasingly scrutinized as
investors constantly look for rising profits. This may lead management to
perform somewhat questionable practices in order to boost earnings.

Before deciding whether or not to go public, companies must evaluate all of the
potential advantages and disadvantages that will arise. This usually will happen during
the underwriting process as the company works with an investment bank to weigh the
pros and cons of a public offering and determine if it is in the best interest of the
company.

To learn more, see IPO Basics Tutorial, The Murky Waters Of The IPO Market, and
Don't Forget To Read The Prospectus!
http://www.investopedia.com/ask/answers/06/ipoadvantagedisadvantage.asp

Going Public Disadvantages

Profit-sharing

If the firm is sitting on a highly successful venture, future success (and profit) has to be shared
with outsiders. After the typical IPO, about 40% of the company remains with insiders, but this
can vary from 1% to 88%, with 20% to 60% being comfortably normal.

Loss of Confidentiality

A major reason why firms resist going public is the loss of confidentiality in company operations
and policies. For example, a company could be destroyed if the company were to disclose its
technology or profitability to its competitors.

Reporting and Fiduciary Responsibilities

Public companies must continuously file reports with the SEC and the exchange they list on.
They must comply with certain state securities laws ("blue sky"), NASD and exchange
guidelines. This disclosure costs money and provides information to competitors.

Loss of Control

Outsiders are often in a position to take control of corporate management and might even fire the
entrepreneur/company founder. While there are effective anti-takeover measures, investors are
not willing to pay a high price for a company in which poor management could not be replaced.
IPO Expenses

An IPO is a costly undertaking. A typical firm may spend about 15-25% of the money raised on
direct expenses. Even more resources are spent indirectly (management time, disruption of
business).

Immediate Cash-out Usually Not Permitted

Typically, IPO entrepreneurs face various restrictions that do not permit them to cash out for
many months after the IPO.

Liability

The company, its management, and other participants may be subject to liability for false or
misleading statements and omissions in the registration documents or in the reports filed by the
company after it becomes public. In addition management may be subject to law suits by the
stockholders for breaches of fiduciary duty, self dealing and other claims, whether or not true.

http://www.gopublictoday.com/going-public/goingpublic-disadvantages.php

Going Public Advantages

Access to Capital

A public offering of stock can vary from $500,000 to over $1 billion. In 1999, 544 companies
completed an IPO(Initial Public Offering). The total capital raised from these offerings was
$23.6 billion. By offering stock for sale to the public a company can access a substantial source
of corporate funding.

If a company needs to raise capital, it can sell stock(equity) or it can it issue bonds(debt
securities). An initial equity offering can bring immediate proceeds to a company. These funds
may be used for a variety of purposes including; growth and expansion, retiring existing debt,
corporate marketing and development, acquisition capital and corporate diversity.

Once public, a company's financing alternatives are increased. A publicly traded company can
return to the public markets for additional capital via a bond or convertible bond issue or
secondary equity offering. A public status can also provide favorable terms for alternative
financing from public and private investors.

In general, public companies have a higher valuation than private enterprises.

Liquidity

To sell the stock of a private compnay, a stockholder must find another individual that is
interested in owning the shares. This is very difficult, especially for minority positions.

By going public, a company creates a market for its stock in which buyers and sellers participate.
In general, stock in a public company is much more liquid than stock in a private enterprise.
Liquidity is created for the investors, institutions, founders, owners and venture capital
professionals. Investors of the company may be able to buy or sell the stock more readily upon
completion of the public offering.

This liquidity can elevate the value of the corporation. The stock's liquidity is contingent on a
variety of factors including, registration rights, lock-up restrictions and holding periods. A public
company has greater opportunity to sell shares of stock to investors. Ownership of stock in a
public company may help the company's principles to eliminate personal guarantees.

Liquidity can also provide an investor or company owner an exit strategy, portfolio diversity, and
flexibility of asset allocation.

Compensation

Many companies use stock and stock option plans to attract and retain talented employees. It is
increasingly common to recruit and compensate executives with a combination of salary and
stock. Stock in a public company can be issued as a performance based reward or incentive.

This reward is more desirable if the stock has a public market. Stock can be instrumental in
attracting and keeping key personnel. Also, certain tax advantages are a consideration when
issuing stock to an employee. Generally, capital gains taxes are lower than ordinary income
taxes. Owners and employees may have specific restrictions relating to the liquidity and sale of
the stock.

A public offering can create a market for the company's stock. This market can result in liquidity
and reward for the company's employees. A stock plan for employees demonstrates corporate
good will allows employees to become partial owners in the company where they work.

An allocation of ownership or division of equity can lead to increased productivity, morale and
loyalty. This type of compensation is a way of connecting an employee's financial future to the
company's success.

Prestige
A public offering of stock can help a company gain prestige by creating a perception of stability.
A company's founders, co-founders and managers gain an enormous amount of personal prestige
from being associated with a client that goes public. Prestige can be very helpful in recruiting
key employees and marketing products and services.

When sharing ownership with the public, you spread the company's reputation and increase its
business opportunities. By selling stock on an exchange your company can gain additional
exposure and become better known. This exposure may lead to improved recognition and
business operations.

The public status can be leveraged when marketing goods and services. Often a company's
suppliers and consumers become shareholders, which may encourage continued or increased
business. In this example, a public company could have a competitive advantage over a private
enterprise. An IPO can indicate credibility to a company's customers, which may lead to
increased sales and a greater corporate profile.

Once public, lenders and suppliers may perceive the company as a safer credit risk, enhancing
the opportunities for favorable financing terms. Also, a public offering can create publicity that is
effective when marketing your company.

Image

Public firms tend to have higher profiles than private firms. This is important in industries where
success requires customers and suppliers to make long-term commitments.

For example, software requires a significant investment in training and no manager wants to buy
software from a firm that may not be around for future upgrades, improvements, bug fixes, etc.
Indeed, the suppliers' and customers' perception of company success is often a self-fulfilling
prophecy.

Publicity

A public offering of stock can generate prestige, publicity and visibility, which is effective when
marketing your company. Public companies are more likely to receive the attention of major
newspapers, magazines and periodicals than a private enterprise.

A strong ad campaign coupled with media initiatives can potentially increase sales and revenue.
The publicity received from a public offering encourages new business development and
strategic alliances. Analyst reports and daily stock market tables contribute to the awareness of
the consumer and financial community.

A successful public offering can get your company's story out to the world and open an
opportunity for investors that are not suited for an investment in a private company. The
publicity that a public offering brings can attract the attention of potential partners or merger
candidates.
Because the financial condition of a public company is subject to the scrutiny of the SEC
reporting requirements, existing or future business relationships are strengthened.

Mergers & Acquisitions

Once a company is public and the market for its stock is established, the stock can be considered
as valuable as cash when acquiring other businesses. A successful IPO can have a dramatic effect
on a company's profile, perceived competitiveness and stability. This perception can lead to
expanded business relationships and added confidence in the consumer.

A valuation of a private company often reflects illiquidity. A successful public offering will
increase a company's valuation leading to a variety of opportunities for mergers and acquisitions.
With the ability to raise additional capital by returning to the public markets for another offering,
a public company is better able to finance a cash acquisition.

A public company also has the advantage of using the market's valuation when exchanging stock
in an acquisition. SEC disclosure requirements offer merger candidates the assurance of
shareholder scrutiny and accurate reporting of the financial condition or solvency of the public
company. Using stock to acquire another company can be easier and less expensive than other
methods.

Additionally, Many private firms do not appear on the radar screen of potential acquirers. Being
public makes it easier for other companies to notice and evaluate the firm for potential synergies.

Exit Strategy

One of the important benefits of a public offering is the fact that the company's stock eventually
becomes liquid, offering reward and financial freedom for the founders and employees.

A public market for the stock also provides a potential exit strategy and liquidity to the investors.
A psychological sense of financial success can be an added benefit of going public. A public
offering can enhance the personal net worth of a company's shareholders.

Even if a public company's shareholders do not realize immediate profits, publicly-traded stock
can be used as collateral to secure loans.

Future Capital

Growing companies constantly need access to new capital. Going public is one way to obtain
that capital, but it takes time and money -- quite a lot of both! Going public offers some strategic
advantages:

Almost all companies go public primarily because they need money. All other reasons are of
secondary importance. The typical (firm-commitment) IPO raises $20-40M, but offerings of
$100M are not unusual. This can vary widely by industry.
Once public, firms can easily go back to the public markets to raise more cash. Typically, about a
third of all IPO issuers return to the public market within 5 years to issue a "seasoned equity
offering" (the term secondary is used to denote shares sold by insiders rather than by firms).
Those that do return raise about three times as much capital in their seasoned equity offerings as
they raised in their IPO.

http://www.gopublictoday.com/going-public/goingpublic-advantages.php

What is the advantage and disadvantage of

public company?
Advantages
A public company has several advantages. It is able to raise funds and capital through the sale of
its securities. This is the reason why public corporations are so important, historically; prior to
their existence, it was very difficult to obtain large amounts of capital for private enterprises. In
addition to the ease of raising capital, public companies may issue their securities as
compensation for those that provide services to the company, such as their directors, officers and
employees. While private companies may also issue their securities as compensation for services,
the recipent of those securities often have difficulty selling those securities on the open market.
Securities from a public company, typically have an established fair market value at any given
time as determined by the price the security is sold for on the stock exchange where the security
is traded.

Disadvantages
A public company has some disadvantages. It has to meet the requirement to publicly disclose
much financial information; such information could be useful to competitors. For example, Form
10-K is an annual report required by the SEC each year that is a comprehensive summary of a
company's performance. Private companies do not file form 10-Ks. It is less pressured to "make
the numbers" - to meet quarterly projections for sales and profits, and thus in theory able to make
decisions that are best in the long-run. Public companies spend more for certified public
accountants and other bureaucratic paperwork required of public companies by government
regulations. For example, the Sarbanes-Oxley Act in the United States does not apply to private
companies.
http://answers.yahoo.com/question/index?qid=20080214182755AAbTQPR
Advantages and disadvantages of a private
limited company?

Advantages: Protection of the name (many people protect domain names this way), ability to
bring in partners by selling them shares (partnerships can get quite complex but companies have
built in rules), air of respectability (credit scores tend to be better for corporations but i can't see
why that is so), you can use an address for official correspondence that is not your own or where
you work (useful if your business makes you travel and you don't want business mail to your
home address), and (versus a public limited company) you have a lot less paperwork and
regulation, separate VAT status for the company (else all your income can be VATable if you
are above the threshold)

Disadvantages: You have to have two members at present although one can be a legal entity like
a company, you must not miss company filing deadlines or you get fined, all profits are taxed
whereas people get a tax allowance, you have to be careful not to mix your expenses and income
with that of the company, all contracts tend to have to be more formal.
http://answers.yahoo.com/question/index?qid=20071202015212AAHLAxO

Private company limited by shares

A private company limited by shares, usually called a private limited company (Ltd) (though
this can theoretically also refer to a private company limited by guarantee), is a type of company
incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth
countries and the Republic of Ireland. It has shareholders with limited liability and its shares may
not be offered to the general public, unlike those of a public limited company (plc).

"Limited by shares" means that the company has shareholders, and that the liability of the
shareholders to creditors of the company is limited to the capital originally invested, i.e. the
nominal value of the shares and any premium paid in return for the issue of the shares by the
company. A shareholder's personal assets are thereby protected in the event of the company's
insolvency, but money invested in the company will be lost.

A limited company may be "private" or "public". A private limited company's disclosure

requirements are lighter, but for this reason its shares may not be offered to the general public
(and therefore cannot be traded on a public stock exchange). This is the major distinguishing
feature between a private limited company and a public limited company. Most companies,
particularly small companies, are private.
Private companies limited by shares are usually required to have the suffix "Limited" (often
written "Ltd" or "Ltd.") or "Incorporated" ("Inc.") as part of their name, though the latter cannot
be used in the UK or the Republic of Ireland; companies set up by Act of Parliament may not
have Limited in their name. In the Republic of Ireland "Teoranta" ("Teo.") may be used instead,
largely by Gaeltacht companies. "Cyfyngedig" ("Cyf.") may be used by Welsh companies in a
similar fashion.

Requirements Private company limited

Share capital

Only £1 share capital is needed to start up a private limited company. Limited Companies are
formed with both an authorised share capital and an issued share capital. The authorised share
capital is the total number of shares existing in the company multiplied by the nominal value of
each share. Not all such shares may have been issued. The issued share capital is the same
calculation in respect of all the issued shares.

A company incorporated in England and Wales can be created with any number of shares of any
value, in any currency. For example, there may be 10,000 shares with a nominal value of 1p, or
100 shares each of £1. In each case the share capital would be £100.

Unissued shares can be issued at any time by the directors using a Form SH01 - Return of
Allotment of Shares(Pursuant to Companies Act,2006) subject to prior authorisation by the
shareholders.

Shares in a private company are usually transferred by private agreement between the seller and
the buyer, as shares in a private company may not by law be offered to the general public. A
stock transfer form is required to register the transfer with the company. The articles of
association of private companies often place restrictions on the transfer of shares.

[edit] Company accounts

A company's first accounts must start on the day of incorporation. The first financial year must
end on the accounting reference date, or a date up to seven days either side of this date.
Subsequent accounts start on the day following the year-end date of the previous accounts. They
end on the next accounting reference date or a date up to seven days either side.

To help companies meet this filing requirement, Companies House send a pre-printed "shuttle"
form to its registered office several weeks before the anniversary of incorporation. This will
show the information that has already given to Companies House. If a company's accounts are
delivered late there is an automatic penalty. This is between £100 and £1,000 for a private
company.

The first accounts of a private company must be delivered:

 • within 10 months of the end of the accounting reference period until April 2008, when it
will reduce to 9 months; or
• if the accounting reference period is more than 12 months, within 22 months of the date
of incorporation, or three months from the end of the accounting reference period,
whichever is longer.

A company may change its accounting reference date by sending Form 225 to the Registrar.

[edit] Registered office

Every company must have a registered office, which does not need to be its usual business
address. It is sometimes the company's lawyers or accountants, for example. All official letters
and documentation from the government departments (including Inland Revenue and Companies
House) will be sent to this address, and it must be shown on all official company documentation.
The registered office can be anywhere in England and Wales (or Scotland if the company is
registered there). If a company changes its registered office address after incorporation, the new
address must be notified to Companies House on Form AD01.

[edit] Formation

To incorporate a company in the UK (other than Northern Ireland) the following documents,
together with the registration fee, must be sent to the Registrar of Companies:

• Form 10
• Form 12
• The articles of association
• The memorandum of association

The memorandum of association states the name of the company, the registered office and the
company objectives. The objective of a company may simply be stated as being to carry out
business as a general commercial company. The memorandum delivered to the Registrar must be
signed by each subscriber in front of a witness who must attest the signature.

The articles of association govern the company's internal affairs. The company's articles
delivered to the Registrar must be signed by each subscriber in front of a witness who must attest
the signature.

Form 10 states the first directors, the first secretary and the address of the registered office. Each
director must give his or her name, address, date of birth, occupation and details of other
directorships held within the last five years. Each officer appointed and each subscriber (or their
agent) must sign and date the form.

Form 12 is a statutory declaration of compliance with all the legal requirements relating to the
incorporation of a company. It must be signed by a solicitor who is forming the company, or by
one of the people named as a director or company secretary on Form 10. It must be signed in the
presence of a commissioner for oaths, a notary public, a justice of the peace or a solicitor.
In other jurisdictions companies must make similar applications to the relevant registrar — the
Northern Ireland Registrar of Companies in Northern Ireland, the Companies Registration
Office, Ireland in the Republic of Ireland, or the Registrar of Companies in India.

In reality it is far easier to contact one of the Company Registration services that can now form a
company online without your written signature.

[edit] Additional information

[edit] Redundant companies

Private companies that have not traded or otherwise carried on business for at least three months
may apply to the Registrar to be struck off the register. Alternatively, the company may be
voluntarily liquidated.

[edit] Converting to a public limited company

A private company limited by shares and an unlimited company with a share capital may re-
register as a public limited company (PLC). A private company must pass a special resolution
that it be so re-registered and deliver a copy of the resolution together with an application form
43(3)(e) to the Registrar.

http://en.wikipedia.org/wiki/Private_company_limited_by_shares

Home Page > Business > A Private Limited Company Advantages

A Private Limited Company Advantages

private limited company advantages include:

1. Limitation of Liability

There is no distinction between business money and personal money for anyone self
employed as all business debts are the personal responsibility of the sole trader. The
private limited company advantages are that the company is a separate corporate body
and liability for payment of debts stops with the pvt ltd company, the owners,
shareholders are not personally liable. The directors are only liable if they continue to
trade and incur liabilities after it becomes apparent the ltd company is insolvent.

2. Lower Taxes

Lower corporation tax offered a private limited company advantages over self
employment in recent years. The £10,000 tax free limit was cancelled several years
ago. Corporation tax rates have increased from 20 per cent to 22 per cent in recent
years compared with the sole trader basic rate tax which was reduced from 22 per cent
to 20 per cent in 2008. Incorporation still has tax saving advantages dependent upon
the net taxable profit.

The private limited company advantages come from the flexibility of being able to
determine the proportions of salary and dividends taken compared with a sole trader
whose basic accounts are subject to tax at fixed tax rates and thresholds.

A sole trader receives a £6,035 personal allowance and pays basic rate tax of 20 per
cent on the next £34,800 of earnings up to the higher threshold limit and 40 per cent
tax thereafter. Class 4 national insurance is 8 per cent of earnings up to the upper
primary threshold and 1 per cent thereafter.

Dividends are taxed at 10 per cent on total income up to the higher threshold and 32.5
per cent above. The dividend is a distribution of company profit after corporation tax
has been deducted and so the shareholder also receives a dividend tax credit from the
pvt ltd company of 10 per cent.

There are significant private limited company advantages regarding tax liability
compared to a sole trader where net income is below the upper earnings threshold.

For example assuming the limited company net profit before salary is £35,000. A sole
trader would pay income tax of £5,793 plus national insurance of £2,317.20, a total of
£8,107.20. If a salary of £6.035 is taken and the rest is taken in dividends a private
limited company would pay £6,372.30 corporation tax, after deducting the salary from
net taxable profit and the sole trader now the shareholder would pay no income tax.

The advantages increase where net taxable profit is above the self employment upper
earnings limit as money can be left in the business and therefore only subject to the 22
per cent corporation tax rate thereby avoiding the sole trader 40 per cent tax rate.
Another possibility is to distribute the shares among family members to reduce the risk
of 40 per cent tax.

3. Limited Company accounts and Sole Trader basic accounts

Sole trader basic accounts can be quite simple as a formal accounting system is not
required and can be reduced to simple lists of income and expenditure supported by
documentary evidence of sales and purchase invoices, effectively single entry
bookkeeping. Producing a balance sheet is optional. Due to the simplicity then an
accountant may not be required saving a significant cost.

Ltd company accounts have to use double entry bookkeeping to produce the year end
accounts including a balance sheet with statutory notes and statements. Unless
accounting software is employed to produce the company accounts in this format then
accounting knowledge is required and an accountants fee may well be in the region of
£500 to £1,000. An accountant is not essential for a small pvt ltd company but is the
normal approach and offsets some of the tax advantages.
4. Additional financial considerations

Because a director is also officially an employee of the pvt ltd company this gives rise to
a number of considerations in determining the extent of a private limited company
advantages.

Pension contributions of a sole trader are personal and while may be deducted from the
personal income liability do not form part of the basic accounts. The cost of a pension
scheme including the company contribution is a deductible business expense as an
employee cost.

Using a car for business purposes may have an impact. The sole trader basic accounts
would include the business proportion of the vehicle running costs or the mileage
allowance. If that vehicle is used by a director then that director is receiving a taxable
benefit potentially resulting in a higher tax burden depending upon the type of vehicle
as taxable benefits vary. An alternative may be to leave the company vehicle privately
owned and the director claim mileage allowances rather than vehicle running costs.

Potentially small issues but there differences in the accounting treatment of deductible
expenses such as charitable donations, entertaining expenses and use of home as
office. A private limited company advantages consist of being able to claim such
expenses as valid business expenses which would not be claimable in the sole trader
basic accounts as treated as personal not business.

If the director and main shareholder have other associated companies then the
corporation basic tax rate could be affected.

5. Administration, management and business standing

A sole trader basically pleases themselves with regard to the administration and
management of the business. A company director is responsible for adhering to
company administration according to statutory regulations in regard to both the limited
company accounts, statutory books and management as stated in the articles of
association. The duties of a director are more formal than a sole trader.

Forming a private limited company is an indication that a business is both serious, has
a long term objective and is correctly managed. This psychological perception can
increase the business standing of a business. Funding requirements are more likely to
be met as the lender to a sole trader has to consider the absence of a balance sheet
statement in the basic accounts and the financial influences personally affecting the
sole trader. A private limited company advantages concern the published financial
statements, protection of the financial position from personal influences and the option
of increasing security by virtue of asking directors to provide additional personal
guarantees.

A private limited company advantages over self employment also extends to long term
finance. Companies retain more funds within the business to meet future financial
commitments which promote business growth, a more sustainable business and
medium term profits growth over a sole trader.

http://www.articlesbase.com/business-articles/a-private-limited-company-advantages-
581756.html

Set up a limited company - business guide

If you want to set up a limited company online right away, simply click here.

Aside from sole trader status, most small businesses set up as limited companies. The term
‘limited’ derives from the fact that the company’s finances are distinct from the personal
finances of their owners (unlike the sole trader arrangement).

Shareholders in limited liability companies are not responsible for company debts, although if
required, directors may be required to guarantee loans or credit granted to the company.

The higher level requirements for limited liability companies are as follows:

• Company must be registered at Companies House

• Annual accounts must be filed at Companies House
• Annual Return must be completed each year to update Companies House with basic
details relating to the company. Also requires a small annual fee.
• HMRC must be informed if the Company has any profits or taxable income in a
Company year.
• Company must complete an annual HMRC corporation tax return and pay the due taxes
within nine months of the company year end each year.
• Anyone employed by the company must pay income tax and national insurance on their
income.

Set up a Limited Company – Incorporation Process

Companies House is responsible for company registration in Great Britain. It also has a key role
in providing information about British companies. Before a business can set up as a limited
company (or become “incorporated”), it must be registered with Companies House.

The following documents must be completed by you (or quite commonly, an intermediary) and
returned to Companies House to complete the Incorporation Process:

1) Memorandum of Association – Includes Company Name, Location and Type of Business

2) Articles of Association – Outlines Directors’ powers, shareholder rights, etc.

3) Form IN01 - Contains details of the Company's registered office, the details of the consenting
Secretary and Director(s), details of the subscribers and, in the case of a company limited by
shares, details of the share capital. This form replaced the old Form 10 and Form 12 from 1st
October 2009.

These documents are often prepared by private sector formation agents (or your accountant), but
there is no requirement in law to use an agent.

The Companies House website provides detailed guidance and FAQ's which describe all aspects
and requirements of the registration process, including what you can call your limited company,
and the payment snf documentation required to complete the registration process.

Set up a Limited Company - Types of Legal Structure

Private Limited Companies, the most typical set up for small UK businesses cannot offer shares
to the public, but may have any number of shareholders. Each Private Limited Company must
have at least one director to make management decisions and a company secretary (Note - The
Companies Act 2006 means that appointing a company secretary is no longer a legal
requirement).

PLC’s (public limited companies) differ from Private Limited Companies in that they are
allowed to offer shares to the public to raise funds (with shares issued to a minimum value of
£50,000). Each PLC must have at least two directors to make management decisions and a
company secretary.

Online Company Formation

You can form a limited company online right now, via our partners at Duport. Many hundreds of
Bytestart visitors have set up companies online via Duport over the past 3 years - the service is
fast and simple, and help is on hand if you require it.

http://www.bytestart.co.uk/content/19/19_1/forming-a-limited-liabili.shtml

Why Public Companies Go Private

A public company may choose to go private for a number of reasons. An acquisition can
create significant financial gain for shareholders and CEOs, while the reduced
regulatory and reporting requirements private companies face can free up time and
money to focus on long-term goals. Because there are advantages and disadvantages
to going private as well as short- and long-term issues to consider, companies must
carefully weigh their options before making a decision. Let's take a look at the factors
that companies must factor in to the equation.
Advantages of Being Public
Being a public company has its advantages and disadvantages. On the one hand,
investors who hold stock in such companies typically have a liquid asset; buying and
selling shares of public companies is relatively easy to do. However, there are also
tremendous regulatory, administrative, financial reporting and corporate governance
bylaws to comply with. These activities can shift management's focus away from
operating and growing a company and toward compliance with and adherence to
government regulations.

For instance, the Sarbanes-Oxley Act of 2002 (SOX) imposes many compliance and
administrative rules on public companies. A byproduct of the Enron and Worldcom
corporate failures in 2001-2002, SOX requires all levels of publicly traded companies to
implement and execute internal controls. The most contentious part of SOX is Section
404, which requires the implementation, documentation and testing of internal controls
over financial reporting at all levels of the organization. (For more on the regulations that
govern public companies, see Cooking The Books 101 and Policing The Securities
Market: An Overview Of The SEC.)

Public companies must also conduct operational, accounting and financial engineering
in order to meet Wall Street's quarterly earnings expectations. This short-term focus on
the quarterly earnings report, which is dictated by external analysts, can reduce
prioritization of longer-term functions and goals such as research and development,
capital expenditures and the funding of pensions, to name but a few examples. In an
attempt to manipulate the financial statements, a few public companies have
shortchanged their employees' pension funding while projecting overly optimistic
anticipated returns on the pension's investments. (For further reading, see Five Tricks
Companies Use During Earnings Season.)

Advantages of Privatization
Investors in private companies may or may not hold a liquid investment. Covenants can
specify exit dates, making it challenging to sell the investment, or private investors may
easily find a buyer for their portion of the equity stake in the company. Being private
frees up management's time and effort to concentrate on running and growing a
business, as there are no SOX regulations to comply with. Thus, the senior leadership
team can focus more on improving the business's competitive positioning in the
marketplace. Internal and external assurance, legal professionals and consulting
professionals can work on reporting requirements by private investors.

Private-equity firms have varying exit time lines for their investments depending on what
they have conveyed to their investors, but holding periods are typically between four
and eight years. This horizon frees up management's prioritization on meeting quarterly
earnings expectations and allows them to focus on activities that can create and build
long-term shareholder wealth. Management typically lays out its business plan to the
prospective shareholders and agrees on a go-forward plan. This covers the company's
and industry's outlook and sets forth a plan showing how the company will provide
returns for its investors. For instance, managers might choose to follow through on
initiatives to train and retrain the sales organization (and get rid of underperforming
staff). The extra time and money private companies enjoy from decreased regulation
can also be used for other purposes, such as implementing a process-improvement
initiative throughout the organization.

What It Means to Go Private

A "take-private" transaction means that a large private-equity group, or a consortium of
private-equity firms, purchases or acquires the stock of a publicly traded corporation.
Because many public companies have revenues of several hundred million to several
billion dollars per year, the acquiring private-equity group typically needs to secure
financing from an investment bank or related lender that can provide enough loans to
help finance (and complete) the deal. The newly acquired target's operating cash flow
can then be used to pay off the debt that was used to make the acquisition possible.
(For background reading on private equity, see Private Equity A Trendsetter For
Stocks.)

Equity groups also need to provide sufficient returns for their shareholders. Leveraging
a company reduces the amount of equity needed to fund an acquisition and is a method
for increasing the returns on capital deployed. Put another way, a company borrows
someone else's money to buy the company, pays the interest on that loan with the cash
generated from the newly purchased company, and eventually pays off the balance of
the loan with a portion of the company's appreciation in value. The rest of the cash flow
and appreciation in value can be returned to investors as income and capital gains on
their investment (after the private-equity firm takes its cut of the management fees).

When market conditions make credit readily available, more private-equity firms are
able to borrow the funds needed to acquire a public company. When the credit markets
are tightened, debt becomes more expensive and there will usually be fewer take-
private transactions. Due to the large size of most public companies, it is normally not
feasible for an acquiring company to finance the purchase single-handedly.

Motivations for Going Private

Investment banks, financial intermediaries and senior management build relationships
with private equity in an effort to explore partnership and transaction opportunities. As
acquirers typically pay at least a 20-40% premium over the current stock price, they can
entice CEOs and other managers of public companies - who are often heavily
compensated when their company's stock appreciates in value - to go private. In
addition, shareholders, especially those who have voting rights, often pressure the
board of directors and senior management to complete a pending deal in order increase
the value of their equity holdings. Many stockholders of public companies are also
short-term institutional and retail investors, and realizing premiums from a take-private
transaction is a low-risk way of securing returns. (To read about privatization on a
massive scale, check out State-Run Economies: From Public To Private.)

Balancing Short-Term and Long-Term Considerations

In considering whether to consummate a deal with a private-equity investor, the public
company's senior leadership team must also balance short-term considerations with the
company's long-term outlook.
 • Does taking on a financial partner make sense for the long term?
• How much leverage will be tacked on to the company?
• Will cash flow from operations be able to support the new interest payments?
• What is the future outlook for the company and industry?
• Are these outlooks overly optimistic, or are they realistic?

A private-equity firm that adds too much leverage to a public company in order to fund
the deal can seriously impair an organization in adverse scenarios. For example, the
economy could take a dive, the industry could face stiff competition from overseas or
the company's operators could miss important revenue milestones.

If a company has difficulty servicing its debt, its bonds can be reclassified from
investment-grade bonds to junk bonds. It will then be harder for the company to raise
debt or equity capital to fund capital expenditures, expansion or research and
development. Healthy levels of capital expenditures and research and development are
often critical to the long-term success of a company as it seeks to differentiate its
product and service offerings and make its position in the marketplace more
competitive. High levels of debt can thus prevent a company from obtaining competitive
advantages in this regard. (To learn more, read Corporate Bonds: An Introduction To
Credit Risk and Junk Bonds: Everything You Need To Know.)

Management needs to scrutinize the track record of the proposed acquirer based on the
following criteria:

• Is the acquirer aggressive in leveraging a newly acquired company?

• How familiar is it with the industry?
• Does the acquirer have sound projections?
• Is it a hands-on investors, or does the acquirer give management leeway in the
stewardship of the company?
• What is the acquirer's exit strategy?

Modern Poly set to go public

Posted on April 20, 2010 by bangladesheconomy| Comments Off

http://www.thedailystar.net/newDesign/news-details.php?nid=135218
Modern Poly set to go public
Sarwar A Chowdhury

Modern Poly Industries Limited, a concern of business conglomerate TK Group,

is set to raise fund from the stockmarket for business expansion.

The Chittagong-based company will float three crore ordinary shares of Tk 10

each using book building method, a modern pricing mechanism for initial public
offering (IPO).

With IPO proceeds, the company will acquire a 95 percent stake in Modern Fibre
Industries Limited, a sister concern of Modern Poly Industries. It will also use a
portion of the fund to repay bank loans and the rest will be added to its working
capital.

“We have already submitted a draft prospectus of the IPO to the Securities and
Exchange Commission for its consent to commence bidding to discover cut-off
price for each share,” said Abul Bashar, chairman of Modern Poly Industries.

“Another objective of going public is to involve general public in our businesses

and share the profit with them.”

Pointing out that doing business after investments with bank borrowing is very
difficult, as high interest has to be paid for the loan, Bashar said, “We will not
require paying any interest if we raise funds from the stockmarket.”

Modern Poly Industries, the paid-up capital of which is Tk 50 crore, will organise
a roadshow today to display the company’s key facts to the institutional bidders.

Organising road show is required by the book building regulations, before price
discovery of a company’s share.

During the road show, Alliance Financial Services Limited, the issue manager of
the IPO, will present Modern Poly Industries’ information, fundamentals,
valuation, indicative price and so on to the eligible institutional investors.

Indicative price for each Modern Poly share has already been fixed at Tk 64. Now
under book building method, the eligible institutions will be allowed to quote 20
percent up or down from the indicative price for each share. It means the
investors will be allowed to offer prices between Tk 51.20 and Tk 76.80.
Modern Poly Industries, which diluted earnings per share as of 2009 was Tk
2.52, established in 1999 as a fully export-oriented company that manufactures
“Partially Oriented Yarn” (POY) and “Drawn Texturised Yarn” (DTY) products.

Entrepreneurs of the company are also involved in other businesses such as

hatchery, power generation, insurance, synthetic yarn and trading.

Modern Poly Industries is the fourth company that announced its intention to go
public using the book building method.

This mechanism was introduced last year to attract large and profitable
companies to be listed on bourses.

RAK Ceramics, a UAE-Bangladesh joint venture, is the first company that uses
book building for IPO. After RAK, LankaBangla Securities Limited and Alliance
Holdings Limited have announced share offloading under book building.

Conclusion
A take-private transaction is an attractive and viable alternative for many public
companies. As long as debt levels are reasonable and the company continues to
maintain or grow its free cash flow, operating and running a private company frees up
management's time and energy from compliance requirements and short-term earnings
management and may provide long-term benefits to the company and its shareholders.
s