Should businesses IPO? Benefits of an IPO on the stock exchange

Article overview

The benefits of an IPO on the stock exchange are not only an opportunity to mobilize capital but also helps businesses affirm their reputation in the stock market. This is an important strategy for businesses that want to expand their scale and strengthen their financial capacity. The following article will analyze in depth the benefits and challenges of an IPO for Vietnamese businesses.

Benefits of an IPO on the stock exchange
Benefits of an IPO on the stock exchange

Should businesses IPO? Benefits IPO brings to businesses

Risk always comes with opportunity. So what are the benefits when you do an IPO? IPO brings a lot of value in the short and long term. The following are the benefits businesses get when conducting an IPO.

Mobilize capital from external sources

When conducting an IPO, you can raise larger capital than before. Capital sources come from individual investors, institutional investors and financial institutions. This is done by selling shares on the stock market.

You can use capital for company operating activities. These activities are expanding scale, developing additional products or purchasing fixed assets.

Enhance brand reputation

IPO helps you gain more trust from business partners, customers and suppliers. These benefits are the premise for the company to attract new business opportunities.

When IPO, you also have the opportunity to appear on financial press pages. At that time, investors, customers and the business community will know about the business. This helps bring the business brand closer to the market. This is extremely useful to improve your competitive advantage over your competitors.

Increase efficiency in administrative activities

When IPO, you need to prepare transparent financial reports. In addition, for stock prices to increase, you need to maintain good governance. From there, you gradually improve the efficiency of managing activities in the company.

In addition, to have good financial reporting results, you also pay more attention to management activities to increase the overall efficiency of the organization.

Motivate staff

At IPO, employees can buy company shares at preferential prices. Companies can implement ESOP (Employee Stock Ownership Plan) programs.

Owning shares helps employees realize that the company’s development is closely related to personal benefits. From there, this helps them be motivated to work harder and more effectively.

Thus, based on the benefits that an IPO brings, businesses can consider whether to IPO or not.

Benefits of IPO on the stock exchange

IPO on the stock exchange will bring the following benefits to businesses:

Mobilization – access to capital at reasonable costs

The initial public offering of shares helps businesses mobilize new capital from many different subjects. These include: strategic shareholders, major shareholders, individual investors,… with reasonable costs to serve potential future projects.

Mobilize and grow capital
Mobilize and grow capital

Scale growth

When capital is mobilized when participating in an IPO, businesses will gain a competitive advantage over competitors and make it easier to expand production and business.

The clearest evidence for the effectiveness of IPO activities is the successful business models that have IPO and listed on the stock exchange in Vietnam such as: Vinamilk, Hoa Phat, Vietcombank,..; Internationally, there are Apple, Microsoft, and Alphabet.

Improve management

When a business participates in an IPO, diversifying ownership will help the management process be optimized thanks to requests from major shareholders.

In addition, public companies must also comply with the provisions of the securities law on reporting and information disclosure regimes to meet the increasingly high standards of the market.

By paying bonus shares, employee interests will be closely tied to the interests of the business and help motivate work and employees have many opportunities to develop themselves.

Image – Prestige – Transparency

Participating in the IPO to offer shares for the first time will have a huge impact in terms of information and promoting the business image to the public. This helps create a favorable premise for business cooperation with other partners, expanding markets and developing products and services with listed companies on domestic and international markets.

IPO shares when listed will bring great prestige.

Which businesses are suitable for an IPO?

Enterprises that meet the following conditions will be suitable for IPO:

  • Charter capital of at least 30 billion at the time of IPO registration. This capital level is calculated according to the accounting book value;
  • Business activities for 02 consecutive years immediately preceding the year of registration for offering must be profitable, and at the same time have no accumulated losses up to the year of registration for offering;
  • Have an issuance plan and a plan to use capital obtained from the stock offering approved by the General Meeting of Shareholders;
  • A minimum of 15% of the voting shares of the issuer must be sold to at least 100 investors who are not major shareholders. In case the charter capital of the issuing organization is 1,000 billion VND or more, the minimum ratio is 10% of the voting shares of the issuing organization;
  • Prior to the initial public offering of shares of the issuing organization, major shareholders must commit to jointly holding at least 20% of the issuing organization’s charter capital for at least 01 year from the date of completion of the offering;
  • The issuing organization is not under criminal prosecution or has been convicted of one of the crimes of violating the economic management order but has not had its criminal record erased;
  • There is a securities company that advises on registration documents to offer shares to the public, except in cases where the issuing organization is a securities company;
  • Have a commitment and must list or register to trade shares on the stock exchange system after the end of the offering;
  • The issuing organization must open an escrow account to receive money to buy shares in the offering.

>>> Reference: Popular IPO forms today for businesses.

Challenges when IPO

When a business conducts an IPO, in addition to bringing many benefits to the business, there are also challenges that businesses need to pay attention to to ensure an effective IPO. The following are the main challenges, including:

High cost: The IPO process is not only financially expensive but also requires a lot of human resources and time. Related costs include legal, consulting, auditing and promotional costs, along with strict regulatory compliance requirements.

Requirements for transparency and financial reporting: When becoming a public company, businesses must comply with strict regulations on transparency and financial reporting. This requires businesses to have strict internal management and control systems, as well as be prepared to meet requirements from regulators and investors.

Pressure from shareholders: After an IPO, the business will face pressure from shareholders, who may demand rapid revenue and profit growth. This can lead to strategic decisions being influenced by short-term interests instead of the long-term interests of the business.

Possibility of acquisition: Listing on the stock exchange also brings the risk of being taken over by competitors or other large investors. Businesses need to have a clear strategy to protect their interests in such situations.

Financial pressure: The IPO process requires businesses to publicly disclose financial information and business plans. This can create financial pressure and assessments from shareholders and the market.

Costs incurred: The process of preparing and implementing an IPO requires a lot of effort and resources, along with additional costs such as consulting fees, legal fees, and stock listing costs.

Loss of control: After listing shares, businesses will have to share control with new shareholders, which can lead to a dispersion of power and changes in business strategy decisions.

Challenges faced by businesses
Challenges faced by businesses

In-depth consulting services on IPO for businesses in Long Phan

At Long Phan, we provide in-depth IPO support services with comprehensive solutions:

  • Consulting and support in assessing business potential before IPO;
  • Consulting on the benefits that IPO brings to businesses;
  • Consulting on challenges that businesses may encounter when implementing an IPO;
  • Consulting on measures to prevent risks that may be encountered when IPO;
  • Consulting on effective IPO forms for businesses;
  • Consulting on conditions when implementing an IPO;
  • Consulting in detail on the IPO process and strategic direction;
  • In-depth analysis of financial reports and growth prospects;
  • Instructions on registration procedures and appropriate stock selection;
  • Consulting and answering other issues related to the business’s IPO.

IPO on the stock exchange brings many benefits to businesses. However, there are still risks that businesses need to pay attention to. If you need professional advice on IPO. Please contact the hotline 0906735386 for the most detailed and complete support.