Why Does a Company Go Public & Launch IPO? 

This question comes to the mind of every person who is interested in the stock market. When a private company offers its shares to the public for the first time to raise capital, it is called an Initial Public Offering (IPO). Its main objective is to raise funds from investors for expansion, reducing debt, and other purposes.

In this blog, we will discuss the various reasons due to which the company goes public and launch an IPO in detail.

Understanding IPOs

When a private company offers its shares to the general public for the first time, it is called Initial Public Offering (IPO). After this process, the company gets listed on the stock exchange and anyone with a trading and demat account can buy its shares. The advantage of this is that the company can raise funds quickly and can act quickly on its business plans.

Becoming a Public Company :  After bringing an IPO, the company is identified as a public entity. Now it has to make its financial information public every quarter and must comply with regulatory frameworks set by bodies like SEBI and stock exchanges. This gives transparency to investors and also increases the brand value of the company.

Important Statistics Related to IPO in India

• Latest scenario of IPO in India : The IPO market in India performed tremendously in the financial year 2024-25. During this period, companies raised a total capital of ₹3.71 lakh crore — which is 92% more than last year. In 2024 alone, the companies raised ₹1.67 lakh crore through IPOs, which is the highest in Asia.

• Global Comparison: India now ranks first in terms of number of IPOs. While the US and China saw 205 and 130 IPOs getting launched in 2024, India’s count stood at 332.

Read Also: What is the IPO Allotment Process?

Reasons Companies Go Public

Various reasons due to which the companies go public are listed below:

• Access to Capital : Every business needs funds to expand whether it is to open a new manufacturing plant, invest in technology or repay old debts. By bringing an IPO, companies can raise large amounts of money directly from the general public. These funds help them to act on the business plans quickly, without the tension of repaying loan or interest payments.

• Increasing Brand Value and Public Profile : When a company is listed in the stock market, its brand identity and credibility automatically increases. Its image becomes strong among investors, media and industry due to high regulatory requirements of SEBI. This also easily helps in getting new partnerships and clients and builds trust.

• Exit option for Early Investors : Before bringing an IPO, the shares of the company are owned by a few sophisticated investors and founders. But through IPO, they get a chance to sell their shares. This process gives them liquidity, which is not easily available in private companies.

• Attracting and retaining talent : In today’s competitive world, retaining talent is very important. After becoming a public company, employees with vested ESOPs can easily sell their shares as per the company’s ESOP (Employee Stock Ownership Plan) policies. After the IPO, the shares are traded and if the company’s share performs well, the trust of the employees in the company’s future increases and they are more inclined to stay with the company. 

For all these reasons, bringing an IPO is not just a significant event in a company’s journey, but a strategic decision which can take the company on the path of long-term success.

Read Also: IPO Application Eligibility Criteria

Advantages of Going Public

When a company goes public by launching an IPO, it not only receives funds but also many strategic and long-term benefits. Let us understand these at a glance:

Benefit	Description
Capital Acquisition	The company gets significant capital from the public, which it can use for various purposes.
Market Visibility	Listed companies receive more attention from the media and investors, which increases brand visibility and credibility.
Share Liquidity	After the IPO, shares can be easily bought and sold, providing liquidity to old investors and employees.
Market-Driven Valuation	The stock market participants play a key role in determining the value of a company, which becomes a benchmark for future deals and investments.
Employee Incentives	Plans like stock options and ESOPs make it easier to attract and retain talent.
Better Borrowing Power	It is easier for public companies to get loans from banks on better terms as their financial information is publicly available.
Transparency	Strict regulatory rules improve the governance and trustworthiness of the company.

Disadvantages and Challenges 

There are many benefits of a company going public, but there are some challenges and disadvantages associated with it as well. Let us know the major disadvantages and difficulties that a public company has to face:

• Regulatory Compliance : A public company has to follow strict rules of SEBI and other regulatory bodies. This includes regular financial reporting, audits and providing comprehensive financial information, which can be time-consuming and expensive.

• Market Pressure : The expectations of investors and the market increase a lot. The company’s management may feel the pressure to show good results every quarter, which can sometimes affect long-term business plans.

• Loss of Control : Depending on shareholding structure, founders may experience dilution of control and increased accountability to public shareholders. They have to consider the interests of other investors, which complicates decision making.

• High Costs : Advisors, investment banks and lawyers have to be paid in the IPO process. Apart from this, regular reporting and other corporate expenses also increase after becoming a public company.

Read Also: Why Invest in an IPO and its Benefits?

The IPO Process: A Step-by-Step Guide

Let us know the main steps a company follows to launch an IPO:

Step	Description
Selection of Underwriters	The company first selects the investment banks or firms that will manage the IPO. These underwriters help with pricing, marketing, and other due diligence required in the IPO.
Due Diligence	The financial, legal and operational status of the company is thoroughly examined to ensure that investors get accurate information.
Regulatory Filings	The company submits a Draft Red Herring Prospectus (DRHP) to SEBI. After review and incorporating changes based on SEBI’s comments, the final RHP (Red Herring Prospectus) is filed for public subscription.
Pricing the IPO	The initial price of the share is determined by looking at the market conditions, value of the company and demand among investors.
Marketing	Company’s representatives meet investors, explain the company’s strengths and plans to increase investor interest.
Going public and listing	Once the IPO opens, the retail investors can apply for the shares. After the IPO subscription period is over, the shares are allotted to the general public and the company gets listed on the stock exchange (like NSE or BSE) and are then traded.

Read Also: What Is An IPO Mutual Fund? Should You Invest?

Conclusion 

Going public is a big decision for a company, which has many benefits and challenges. IPO helps companies raise funds and also increases its brand recognition, but with this the regulatory requirements and responsibilities towards stakeholders also increases. Therefore, it is important that the company takes this step thoughtfully.

Going public is not just a way to raise money, but is part of the long journey of the company. With the right timing and planning, it helps in moving the company forward. Therefore, the decision of IPO should always be taken wisely and strategically.

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