Securities and Investing Law Blog

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Advantages and Disadvantages to Going Public; Securities Lawyer - Destiny Aigbe, Esq.

Advantages of Being a Publicly Held Corporation and Registering Securities with the SEC

Stock as Currency. After successful registration, a private company that has become public may issue new shares and create a public market for its outstanding shares. Once there is a public market for a company's shares, investors may purchase and sell shares more readily. The public quotation of a price allows vendors, employees, and even debt holders to take stock in lieu of cash as payment for services or goods. When a company trades on the public market it receives a higher valuation as a result of its public market status. This same stock may be used as currency for transactions such as mergers or asset purchases.

Acquisitions using newly issued stock. A public company may use its stock to acquire other companies by issuing new stock to use as consideration for the transaction rather than cash. A public corporation exchanges its shares for the shares of the target company at a premium in order to buyout the target company and take control of its assets. 

Public Status improves Recruitment and Retention. A company may improve its retention and recruitment of challenging to obtain employees and managers because the public corporation can provide a liquid market for the stock as compensation. Certain fast growing companies such as biotech, pharmaceutical, telecommunication, 

The Economics of Capital RaisingIt may be a lower cost to utilize an exemption from registering securities publicly. A company that registers its securities avoids the challenge of negotiating with professional investors such as venture capitalists and can avoid toxic financing or unfavorable convertible debt financing. The registration of a firm opens that firm to public bond markets.

Maintain Control. A company that sells securities to the broader investing public maintains more control than a private company that issues debt or equity to sophisticated professional investors such as venture capitalists and traditional financiers. Venture capitalists often expect a say in future decision making in the company and will push for board seats, require contractual agreements, decide who will serve as management,and determine compensation for employees and the nature of future dividends or distributions, if any. 

Improved Access to Capital. Usually a company's balance sheet will improve after a going public transaction. Improved balanced sheets can improve access to capital and reduce borrowing costs. If a company qualifies, an automatic shelf registration can lead to a quick secondary offering for access to additional capital. 

Prestige. There is prestige associated with being a major shareholder, director, or officer of a public corporation. There is the recognition of success when a private company becomes a public corporation. The costs associated with filing and maintaining status on a stock exchange provides a floor for the success of firms that are public. The first or primary offering of securities may bring a public corporation issuer $1,000,000 to upwards of $5,000,000. 

Disadvantages of Being a Publicly Held Corporation and Registering Securities with the SEC

Disadvantages include costs, disclosures, and more. To learn the disadvantages of going public email us at or call (202) 854-8386. We are available 24/7.

The Law Offices of Destiny Aigbe | Securities & Going Public Lawyer
Destiny Aigbe, Securities Attorney
1101 Connecticut Ave NW Suite 450
Washington, DC 20036
Telephone: (202) 854-8386

Regulation of Investment Advisers

The Investment Advisers Act of 1940 regulates non-broker-dealers who are in the business of rendering investment advice. Professional investment advisers frequently market their services by publishing advice through newsletters, blogs, or other publications. More commonly, investment advisers manage funds through an investment company, an investment partnership, or otherwise through custodial accounts.

Section 203(f) of the Investment Advisers Act gives the SEC the authority to hold hearings and impose sanctions against investment advisers and their associated persons who violate securities laws. Relevant sanctions range from censure to suspension. The Investment Advisers Act requires registration of all non-exempt investment advisers. In addition to registration, investment advisers must file periodic reports with the SEC and be available for periodic examination by the Commission. 

Section 206 of the Act prohibits material misrepresentations and fraudulent practices in connection with the rendering of investment advice. Section 206 applies negligent misstatements, as well as to those made with the intent to defraud. 

The Investment Advisers Act also regulates contracts between investment advisers and their clients. The Act permits the performance-based advisory fees for qualifying contracts. Qualifying contracts under 17 CFR 275.205-3 include the requirement that the client is financially sophisticated and must understand both the method of compensation and the risks presented by such a performance-based system. There are protections against assignment of the contract between the investor and the investment adviser to prevent a random change in the quality or nature of the advisory services. If the investment adviser is a partnership, the adviser must provide for notice within a reasonable time of all the changes to the composition of the partnership, including changes to key personnel often specified in the offering documents.