Going Public in the Stock Market Finance Essay

"Going public" is a term frequently used in the business world. This term can be defined as, the transition of a privately held company to offering its first group of stocks for sale on a common market. (Web definitions). It is important for companies to make decisions that would be beneficial to them. By doing so, they can acquire the necessary monies and resources to accomplish success. Business owners should consider a number of factors prior to going into operations. One of the main factors is to decide whether they should remain private or go public. Both start up and established businesses should consider going public. It will be beneficial for an established business go public because this will increase its profitability, sales and revenue. The start-up business can use this opportunity in order to demonstrate its capability to eventually accomplish future success.

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According to the video viewed on angel, "going public", Continental Circuits can be used as an example of a company that went public. However, they faced many difficulties which included competition. Therefore, they needed enhance their successes. This was a company which suffered because of disagreement among management. This paper will aim to outline the criteria and steps required for a company to become a publically traded firm. It will also identify the pros and cons of becoming a public firm. In addition, the major and minor markets around the world will be identified and discussed in detail. Lastly, it will identify the Caribbean companies that can enter the public market and the markets which serve as the best option.

There are three main alternatives presented for a company who will wish to sell stocks to the market. This paper will outline all these alternatives and steps involved. The three alternatives are, a rights offering, private offering and public offering. However, this paper will place emphasis on the public offering. An Initial Public Offering could be defined as a corporation’s first offer to sell stocks (Wordnetweb). Going public would involve a number of steps, however, firstly, a team is selected whenever a company decides to go public. This team will include lawyers and accountants. They would be responsible for advising companies on its Initial Public Offering.

Steps required in becoming publicly traded firm

The first step involved in going public is to obtain consent from the existing shareholders and who own the privately issued stocks, (Gitman, 2009, p. 38). It is imperative that businesses inform their shareholders of such decisions so as to avoid any future negative end result. The second step involves lawyers and auditors who will be responsible for certifying all documents pertaining to going public and it is important to also have underwriters. They will ensure that all the paper work is legal. The accountants will also have to ensure that all accounting documents are in agreement with the Generally Accepted Accounting Principles (GAAP), while on the other hand, the lawyers will need to concentrate of documents relating to litigation and loans. (Gitman, 2009, pg. 338).

The third step of this process involves locating an investment bank which will be in agreement to countersign or underwrite the offering. The underwriters are considered as very important in this step because this can influence the accomplishment of the Initial Public Offer. (Gitman, 2009, p. 340). The investment banker will then be responsible for forming an underwriting syndicate who will share financial risk associated with underwriting new securities. (Gitman, 2009, p. 340).

In the fourth step of going public the company will file a registration statement with the SEC. A component of the SEC is called the prospectus, which outlines important aspects of the issue, issuer and the management and its financial position. There is a waiting period involved before approval and during this period, the company can receive a preliminary prospectus or red herring (Gitman, 2009, p. 338).

Fifthly, once the registration is approved the investment community will then commence analyzing the company’s prospects. (Gitman, 2009, p. 338). There will be a quiet period in which the company will have restrictions. This quiet period is to ensure that all potential investors will have access to the equal information. One month after filing, The IPO is usually completed. (Gitman, 2009, p. 338).

The sixth step involves ‘the road show’, in which the company’s stock offering is promoted. This includes a sequence of presentations to potential investors throughout the country which can also be extended to overseas. Another purpose of the road show is to estimate the requirements for the offering and also to set prices. (Gitman, 2009, pg. 339).

Lastly, once SEC and the underwriters agree to the offering, a formal endorsement is made and signed. Once decided upon, the underwriter would be given shares that would need to be sold and the company will then receive capital that is acquired from the offering.

The pros and cons of becoming a public firm

As with everything else, there are advantages and disadvantages of going public. What must be taken into consideration or what must be an onjective to an organisation is to have your pros outweigh your cons. With this, it will give your organisation or firm a stepping stone in becoming a success.


Liqiudity: selling stocks from a private company can be challenging. This is due, to stockholders having to look for a different person who will be interested in owning the shares. As a result, this will make the stock more liquid for the public company and not for a private company (Going Public Today, 2009). In addition, having a high degree of liquidity and portfolio diversity can be accomplished (Block & Hirt, 2005, p.449).

Capital: by going public a firm can increase its monies or capital. However, a firm can increase funds through corporations selling its securities directly to the public (Block & Hirt, 2005, p. 449).

Mergers: this gives firms the provison to be able to utilize marketable sercurities to conduct mergers (Block & Hirt,2005, p. 449).

Exit approach: In this approach, both investors and owners of the public firm have the rights to or a choice to sell out at any given time based on the demand of the market due to their stocks having a very fast liquidity approach.

Usefulness: Because public firms can possess well in established prices, publicly traded stocks can be useful in estate planning (Block & Hirt, 2005, pg. 449).

Image/publicity: according to Block & Hirt, "the high visibility of a public offering may even make the firm a potential recipient of attractive offers for its own securities. However this may not be viewed as an advantage by firms that do not wish to be acquired" (Block & Hirt, 2005, pg. 449). Free advertisement from the media such as magazines and newpaers will gain this sort of recognition due to them being a public firm. As a result of the free advertisement, revenues and sales will eventually increase (Going public today, 2009).

Employee benefits: going public can help compensate and expand their levels of staisfaction, although a firm may not be competent in payig large salaries. However, being able to go public gives the firm the opportunity to make full use its potential in order to pull and keep employess by reccomending or offering stocks to these employees. In addtion, this offer seems to be more valuable and may even include different forms of benefit plans. It is important for a firm to understand that in order to be successful it must be able to have a well qualified staff. This is advantagesous because the company must make sure that they can attract and retain their personnel that is needed to maintain the company’s integrity and increase profitablility postion (Zimmerer & Scarborough, 2005, pg. 394)


Cost: The cost of going public is high (Block & Hirt, 2005, pg. 449). Even though a deal made by the firm does not go through the firm can still loose the money that was already spent on down payment. In addtion to this, there are other cost associated such as: legal and accounting fees; travel fees; printing cost and sponsor allowances and filing fees, just to name a few.

Difficulity: Becoming a public firm is hard work. It can be time consuming and expensive because cpmpanies must make all information available to the public through SEC and state filings (Block & Hirt, 2005, pg. 449).

Pressure: A lot of pressure is being placed on firms for short term performance by security analyst and large intitutional investors (Block & Hirt, 2005, pg. 449).

Liability exposure: By going public, directors and executives of the firm are now exposing themsleves to liability. Once a document has been done wrongly by an employee in the firm, they will be vulnerable to the civil society (Going public today, 2009).

Loss of independence: No longer will the firm be operated by its owner. Because investors have the right to vote on whatever may be an issue to the company, they have the right to make decisions that the company may face. Unfortuneltly, a loss of independence resulted in an increase in takeover.

Major markets around the world

The New York Stock Exchange (NYSE):

On an average day, there about $45 billion trades on this exchange and 1.6 billion shares exchange hands. There are currently about 8500 companies listed on the exchange which are worth nearly $17 trillion. (www.money-zine.com). It is considered the world’s leading and most liquid equities exchange group. NYSE Euronext powers the exchanging world and is comprised of equities and derivatives exchanges across the United States and Europe which trade cash equities, futures, options, fixed-income and exchange-traded products. It is home to the world’s leading companies providing access to the global liquidity they need to collaborate, compete and grow. (Stock Exchange, 2009).


This stock exchange is recognized as the most technologically savvy stock exchange in the world. Companies such as Microsoft trade on the NASDAQ. (Stock Exchange, 2009). The NASDAQ OMX Group, Inc. is the world’s largest exchange company. It delivers trading, exchange technology and public company services across six continents, with more than 3,600 listed companies. It offers multiple capital raising solutions to companies around the globe and its technology supports the operations of over 70 exchanges, clearing organizations and central securities depositories in more than 50 countries. (Stock Exchange, 2009) (https://www.nasdaqomx.com/whoweare/quickfacts/)

American Stock Exchange (AMEX)

This is considered as the third largest stock exchange in the works. On average day, about 50 million shares are exchanged and about 1700 companies are listed.

London Stock Exchange (LSE)

Although it is much smaller that the American stock markets, this market list about 3300 companies from 60 countries some of which are US companies. One of such companies is General Electric.

Toronto Stock Exchange (TSE)

Australian Stock Exchange (ASX)

Bombay Stock Exchange (BSE)

Tokyo Stock Exchange (TSE)

Other world markets include:

North & South America:

Dow Jones Industrial Average – United States

S&P 500 Index – United States

Brazil Bovespa Stock Index – Brazil

Canada S&P/TSX 60 – Canada

Santiago Index IPSA – Chile

IPC – Mexico


FTSE 100 – England

Euronext 100 – Europe

CAC 40 – France

DAX – Germany

Swiss Market Index – Switzerland


Australia ASX All Ordinaries – Australia

Shanghai SE Composite Index – China

Hang Seng – Hong Kong

Mumbai Sensex – India

Nikkei 225 – Japan

Taiwan TSEC 50 Index – Taiwan

Caribbean companies entering public markets:

Caribbean companies which are sometime referred to as "small firms", have never been exempted from the public markets, they now have the opportunity to enter these markets in order for them to create international markets for their stocks and find opportunities for international investment, growth, advertising, increase in capital, and expansion of their customer base.

How can these companies enter the public markets

In the Caribbean, the companies that desire to enter the public market can do so with the aid of the Eastern Caribbean Securities Exchange. The Eastern Caribbean Securities Exchange commonly called ECSE is a regional securities market which is designed to facilitate the buying and selling of financial products, including corporate stocks and bonds and government securities. (ECSE vol. 2, n.d). The ECSE consists of the territories of Anguilla, Antigua & Barbuda, Dominica, Grenada, Montserrat, St. Kitts & Nevis, St. Lucia and St. Vincent & the Grenadines. These countries all have companies trading on the public markets. For example Grenada, there companies such as the Grenada Breweries Limited, Grenada Electricity Services and Jonas Browne & Hubbards (G’da) Limited. These companies trade their stocks on the international scene.

There are guidelines and requirements that companies must follow when entering public markets. They must be listed on the ESCE and meet the required registration requirements. Some of these requirements include, fees and dues and legal requirements.

Companies must ensure that their products or services can meet auditing requirements, high level of competitiveness and continuous growth. It is imperative that they seek advice from a stock exchange intermediary being a broker or dealer, who will be able to assist them in meeting the requirements of the ECSE. The ECSE is connected to the Eastern Caribbean Central Bank. Their main focus is on trading of corporate stocks, government securities and bonds and other financial products.

It is a very crucial period for any company when entering the public markets. Key focus must be made on involving all persons in the company mainly its shareholders, as they will be the ones who will become the key decision makers. Competency and consistency must be apparent, and must exhibit a high level of transparency and accountability as investors would need to know exactly what is taking place. Some of the listing requirements are subjected to:

o Decision making in interest of all shareholders

o Meeting all registration requirements (these are set by the ECSRC)

o Disclosure and distribution of company’s financial structure, performance and activities

Another avenue for companies to enter the public market is the IPO – Initial Public Offering, this is only applicable to private companies wishing to go public. IPO by a private company is the first sale of stock by the company to the public. Although issued by smaller, younger companies in their quest for expansion of capital, it is issued also by large privately owned companies seeking to be publicly traded. (Investopedia, n.d) (www.investopedia.com/terms/i/ipo.asp). This can be a very risky investment as it will be difficult to predict what the stock will do on its initial day of trading and in the near future. This inadequacy is backed by the fact that there is little historical data with whiaich to analyze the company. On the other hand, IPO creates market value on any company’s stock, and while offering shares for sale to the public it is also raising capital.

Once these companies go public by IPO, they will be required to service their investors and the Securities Exchange Commission. An example of one such company going public is SGL Holdings Inc.

This company traded on the international market but they were found to be in violation of the Grenada Securities Act. No. 23 of 2001 where the act prohibits persons from carrying on businesses as a custodian or manger of a collective investment scheme unless licensed to do so by the ECSRC! SGL Holdings Inc was not a licensed entity under the Securities Act and they eventually suffered the fate with the receipt of a cease and desist order. (ECSRC, n.d).

Caribbean companies that can enter public markets and markets that serve as best options

Based on the aforementioned information, we opted to select Sagicor Group Insurance Company. This company is known to be one of the world’s oldest and most experienced insurance companies. With its history dating as far back as 1840, the company has proven to be indigenous with respect to the redefining of financial services in the Caribbean. With operations in 22 countries and a variety of products for every life stage, the Company has expanded into the international financial services marked and evolved into a world-class brand. (Sagicor Financial Corporation, 2010).

Based on the aforementioned information with respect to the world markets such as NASDAQ, LSE, NYSE; Caribbean companies such as Sagicor can trade on these public markets. Research has shown that Sagicor’s revenue has increased from $773m in 2007 to $1,205m in 2005; assets increased from $3,650m in 2007 to $4,460m in 2009. (Sagicor Financial Corporation, 2010).

Based on the aforementioned information with respect to the world markets such as NASDAQ, LSE, NYSE; Caribbean companies such as Sagicor can trade on these public markets. Research has shown that Sagicor’s revenue has increased from $773m in 2007 to $1,205m in 2005; assets increased from $3,650m in 2007 to $4,460m in 2009. (Sagicor Financial Corporation, 2010).

In Grenada, the Grenada Electricity Services Limited (GRENLEC) has also become a publicly traded company, but the question can be asked. Could GRENLEC enter these international markets? Grenada Electricity Company is the sole provider of electricity in Grenada.

The company is responsible for serving more than 40,000 residential, commercial and industrial customers and has been providing integrated services of generation, transmission and distribution of electricity since the 1960’s. With the majority of its shares sold to an investor, GRENLEC has seen growth since then. Its customer base has increased from 550 in 1960 to an excess of 40,000 in 2003. The Company is now listed of the ECSE since 2008. This listing has provided shareholders to trade and establish value for their investment. Investors also can purchase shares in the Company. (Author unknown, n.d).


After carefully considering both markets, Sagicor and GRENLEC, we concluded that not all Caribbean companies wishing to go public can trade in the international public markets. For "small firms", we recommend that the ECSE is the most suitable public market for these companies as it will provide the basis for development and training for these companies who endeavour to go public in the future.

Going Public can enhance the performanceof a business which in turn will mean more capital for the company. We have outlined some companies which have decided to go public both locally and internationally. However, companies need to pay careful attention to the steps and requirements which they need to follow in order to public, so as to avoid any legal implications. It is important that shareholders be a part of the decision to go public. Once a firm gets to sell bonds and stocks on a local, regional and international level this can result in profits for the company.

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Going Public In The Stock Market Finance Essay. (2017, Jun 26). Retrieved December 3, 2022 , from

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