For many companies, listing on a stock exchange opens up a host of new opportunities and enables the business to reach even greater heights.  However, for some, it turns out to have been a fatal error.  Here, we lay out some considerations which should be taken into account; whichever stock market you are looking at, the issues are much the same.

Advantages

1. Access to capital through fundraising at the time of listing, and subsequently.  The "cost of capital" should hopefully also be lower than for an unlisted company.

2. Creates a market for the shares and, subject to regulatory and broker considerations, an "exit" for existing shareholders.

3. Listed shares can be used as "currency" for acquisitions, facilitating more rapid growth.

4. Options over listed shares can be used to retain and incentivise directors and other key employees.

5. Listed companies generally benefit from an increased public profile.

Disadvantages

1. A loss of control - the hardest adjustment for many entrepreneurs.  Decision-making will seem more formal and less dynamic, and you will be accountable to both institutional shareholders and non-executive directors.  Stock market rules will affect what you can and cannot say and do.  Ultimately, a third party may launch a takeover offer for the company, not always at a value the founder shareholder(s) considers adequate.

2. Nowhere to hide - regulatory news updates required about all material developments, negative as well as positive, and you will be judged on how you measure up to market expectations. Disappointed shareholders may apply pressure for change, either to the company's business strategy and direction or to the board itself.

3. Dilution of founder shareholder(s) whenever new shares are issued to raise capital for the business.

4. Market volatility - the share price may fall (as well as rise) for lots of reasons unconnected to the company itself or its management, such as problems, real or perceived, in a particular industry sector or geographic region, or general market or economic sentiment.

5. The listing process will be a distraction from the day-to-day running of the company, and many businesses suffer a drop, hopefully only short-term though, in performance as a result.  The company will also have to bear the costs of the IPO process as well as the ongoing costs of maintaining the listing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.