Question 1

What objectives do companies cite for going public?

Accepted Answer

The SEC's small-business guidance states that companies go public for a number of reasons, and that those reasons can be different for each company. The reasons it lists include: to raise capital and potentially broaden opportunities for future access to capital; to increase liquidity for a company's stock, which may allow owners and employees to sell stock more easily; to acquire other businesses with the public company's stock; to attract and compensate employees with public company stock and stock options; and to create publicity, brand awareness, or prestige for a company. On its “Should My Company ‘Go Public’?” page (last reviewed June 29, 2024), the SEC introduces the list with the sentence, “Companies go public for a number of reasons, and these reasons can be different for each company,” then enumerates the five reasons quoted above. Going public itself refers to the initial public offering by which a company first sells its shares to the public. This page treats each of those documented objectives in turn and identifies the primary-source mechanism that gives it effect; it does not address whether any particular company should go public. The end-to-end sequence of the offering is described on the IPO Lifecycle page, and what an IPO is on the IPO Basics and Definitions page.

Question 2

Why is raising capital the objective most often associated with an IPO?

Accepted Answer

The first reason the SEC lists is to raise capital and potentially broaden opportunities for future access to capital. In an initial public offering, the company sells shares of stock to the public, usually to raise additional capital that it can use in its business. The SEC's Going Public page states that “[g]oing public typically refers to when a company undertakes its initial public offering, or IPO, by selling shares of stock to the public, usually to raise additional capital,” and its “Should My Company ‘Go Public’?” page lists “[t]o raise capital and potentially broaden opportunities for future access to capital” among the reasons companies go public. Only newly issued (primary) shares that the company sells for its own account produce proceeds for the company; how the amount raised is built from primary and secondary shares and from gross versus net proceeds is detailed on the IPO Capital Raise page, and the capital-formation concept generally on the Capital Raising Overview page. Facilitating capital formation is one of the three parts of the SEC's stated mission, alongside protecting investors and maintaining fair, orderly, and efficient markets.

Question 3

Where does a company formally state the objective for the capital it raises?

Accepted Answer

A registrant states its objective for the proceeds in the Use of Proceeds section of the prospectus. Item 504 of Regulation S-K requires it to state the principal purposes for which the net proceeds are intended to be used and, where it has no current specific plan for the proceeds, to say so and discuss the principal reasons for the offering. Regulation S-K Item 504 (17 CFR 229.504) provides: “State the principal purposes for which the net proceeds to the registrant from the securities to be offered are intended to be used and the approximate amount intended to be used for each such purpose. Where registrant has no current specific plan for the proceeds, or a significant portion thereof, the registrant shall so state and discuss the principal reasons for the offering.” This is the disclosure item in which a company's stated goal for the money it raises is made concrete and public. The full mechanics of Item 504 — the order-of-priority instruction, and how repayment of debt and acquisitions are disclosed — are covered on the Use of Proceeds page; this page notes only that Item 504 is where the raising-capital objective is documented.

Question 4

How does going public serve as a source of liquidity for existing shareholders?

Accepted Answer

The SEC lists increasing liquidity for a company's stock — which may allow owners and employees to sell stock more easily — among the reasons companies go public. An initial public offering creates a public trading market in which existing holders can, over time and subject to applicable restrictions, sell shares they already own. The SEC's “Should My Company ‘Go Public’?” page lists “[t]o increase liquidity for a company's stock, which may allow owners and employees to sell stock more easily.” That liquidity is not immediate or unconditional: shares held by insiders are commonly subject to lock-up agreements that restrict sales for a period after the IPO (covered on the Lock-Up Agreements page), and previously issued “restricted” and “control” securities are resold under the conditions of Securities Act Rule 144 (17 CFR 230.144), the safe harbor under which a reselling holder is deemed not to be engaged in a distribution and therefore not an underwriter. An IPO may also include secondary shares sold by existing holders as part of the offering itself; those proceeds go to the selling holders and are addressed on the IPO Capital Raise page.

Question 5

How does going public change the way a company can give employees equity?

Accepted Answer

The SEC lists attracting and compensating employees with public company stock and stock options among the reasons companies go public. Before an IPO, a private company grants compensatory equity under a limited exemption (Rule 701); after it becomes a reporting company, it can register securities offered to employees under employee benefit plans on Form S-8. Securities Act Rule 701 (17 CFR 230.701) exempts offers and sales of securities under a written compensatory benefit plan or contract, but only for an issuer that is not subject to Exchange Act Section 13 or 15(d) reporting — a private company — and it caps the amount sold in any consecutive 12-month period at the greatest of $1,000,000, 15% of the issuer's total assets, or 15% of the outstanding amount of the class being offered. Form S-8 (17 CFR 239.16b) works the other way: it is available to a registrant that is already subject to Exchange Act Section 13 or 15(d) reporting, is current in its required reports, and is not a shell company, to register under the Securities Act “securities to be offered to employees pursuant to employee benefit plans.” Going public is therefore the point at which a company can move from the capped, exemption-based Rule 701 route to registered employee equity on Form S-8.

Question 6

How does becoming public make employee and insider shares easier to sell?

Accepted Answer

Equity granted under Rule 701 before an IPO is “restricted” and cannot be freely resold. Ninety days after the company becomes subject to Exchange Act reporting, non-affiliates may resell those shares under Rule 144 without meeting certain of its conditions, and separately the company can register employee-plan securities on Form S-8 so they are offered as registered securities. Under Rule 701(g)(1) (17 CFR 230.701(g)(1)), securities issued under the compensatory exemption are “restricted securities” as defined in Rule 144. Rule 701(g)(3) provides that “[n]inety days after the issuer becomes subject to the reporting requirements of section 13 or 15(d) of the Exchange Act,” such securities “may be resold by persons who are not affiliates … in reliance on § 230.144, without compliance with paragraphs (c) and (d) of § 230.144, and by affiliates without compliance with paragraph (d) of § 230.144.” This is the concrete mechanism behind the SEC's statement that going public may allow owners and employees to sell stock more easily. It is described here as the plumbing of the employee-equity objective; the broader operation of Rule 144 and of lock-ups is covered on the Lock-Up Agreements page.

Question 7

What does it mean to use public-company stock as an acquisition currency?

Accepted Answer

The SEC lists acquiring other businesses with the public company's stock among the reasons companies go public. A company can offer its own shares, rather than cash, as consideration to acquire another business; the securities issued to the target's holders in such a transaction are registered under the Securities Act, and Form S-4 is the form prescribed for that registration. Form S-4 (17 CFR 239.25) “may be used for registration under the Securities Act of 1933 of securities to be issued” in business combination transactions — including a transaction of the type specified in paragraph (a) of Rule 145, certain mergers, and an exchange offer for securities of the issuer or another entity. Having publicly traded shares is what makes stock a usable form of consideration in these deals. This is distinct from using the cash proceeds of the offering to finance an acquisition, which is a Use of Proceeds matter (Regulation S-K Item 504, Instruction 6) covered on the Use of Proceeds page; here the objective is the company's stock itself serving as the medium of exchange.

Question 8

Is public profile a documented reason companies go public, and what accompanies it?

Accepted Answer

Among the reasons the SEC lists is to create publicity, brand awareness, or prestige for a company. The SEC also states as a factor to consider that, after going public, information about the company — such as financial statements and disclosures about material contracts, customers, and suppliers — becomes available to the general public, including competitors. The SEC's “Should My Company ‘Go Public’?” page lists “[t]o create publicity, brand awareness, or prestige for a company” as one of the reasons companies cite. The same page notes, among the factors to consider, that “[i]nformation about your company, such as financial statements and disclosures about material contracts, customers and suppliers, will become available to the general public (including your competitors).” The public visibility that accompanies going public is therefore a function of the reporting and disclosure a public company becomes subject to; the mechanics of that reporting status are covered on the Public Entity Definition and Becoming a Reporting Company pages. This page reports publicity, brand awareness, or prestige as a documented reason companies cite, not as an assured outcome.

Question 9

What considerations does the SEC pair with these objectives?

Accepted Answer

The same SEC guidance that lists the reasons to go public also lists factors to consider before doing so: that the offering takes time and money; that the company takes on significant new obligations, such as filing SEC reports and keeping shareholders and the market informed; that it and its principals may be liable if those obligations are not satisfied; that it may lose some flexibility, particularly where public shareholders must approve company actions; and that company information becomes public. On the “Should My Company ‘Go Public’?” page, the SEC states that “[b]efore deciding to become a public company, there are important factors to consider,” and lists, among others, that the public offering “will take time and money to accomplish” and that the company “will take on significant new obligations, such as filing SEC reports and keeping shareholders and the market informed about the company's business operations, financial condition, and management.” These considerations are the ongoing obligations a company arrives at as a public company; they are the subject of the Public Company Readiness, Becoming a Reporting Company, and Public Entity Definition pages. They are noted here to frame the objectives factually — as reasons companies weigh against costs — rather than as a recommendation to go public.

Question 10

Can a company pursue more than one of these objectives in the same offering?

Accepted Answer

Yes. The SEC states that the reasons companies go public can differ for each company, and a single offering can serve several at once. An IPO can combine newly issued shares that raise capital for the company with shares sold by existing holders that provide them liquidity, and the prospectus can state more than one principal purpose for the proceeds. Because Regulation S-K Item 504 (17 CFR 229.504) contemplates that more than one use may be listed for the proceeds — its first instruction addresses the “order of priority of such purposes” where less than all the securities may be sold — a company can document multiple capital objectives in one Use of Proceeds statement. Separately, an offering that includes both primary shares (raising capital for the company) and secondary shares sold by existing holders (Regulation S-K Item 507 selling security holders) serves the raising-capital and shareholder-liquidity objectives together; the primary/secondary split and who receives the money are detailed on the IPO Capital Raise page. The objectives are not mutually exclusive.

Question 11

Is going public the only way to pursue these objectives?

Accepted Answer

No. A registered public offering is one path a company may choose; raising capital can also occur through exempt (private) offerings that are not registered with the SEC. The SEC's going-public guidance frames the IPO as a decision rather than a requirement — “if you decide to conduct a registered public offering” — and the SEC's small-business resources present going public and exempt offerings as alternative regulatory pathways to raise capital. The SEC's Going Public page states that “[i]f you decide to conduct a registered public offering, the Securities Act requires your company to file a registration statement with the SEC before it may offer its securities for sale,” language that treats the registered public offering as one option a company may elect. The menu of registered versus exempt routes to capital is set out on the Capital Raising Guide and Capital Raising Overview pages. This page describes the objectives an IPO is intended to serve; it does not assert that going public is necessary to achieve them or advise whether a company should pursue it.

Question 12

Does going public mean the SEC recommends or endorses the offering?

Accepted Answer

No. The Securities Act requires a company to file a registration statement, and it may not sell the securities until the SEC staff declares the registration statement effective. Under Section 23 of the Securities Act, the fact that a registration statement is in effect does not mean the SEC has passed upon the merits of, or given approval to, the securities; effectiveness is not a recommendation or endorsement of the company or the decision to go public. The SEC's mission includes facilitating capital formation, but it does not advise companies on whether to go public. The SEC's Going Public page states that a company “may not actually sell the securities covered by the registration statement until the SEC staff declares the registration statement effective.” Section 23 of the Securities Act (15 U.S.C. 77w) makes the point directly: neither the fact that a registration statement “has been filed or is in effect” nor the fact that a stop order is not in effect “shall be deemed a finding by the Commission that [the] registration statement is true and accurate,” or “be held to mean that the Commission has in any way passed upon the merits of, or given approval to, such security,” and it is unlawful to make any representation to a prospective purchaser contrary to that provision. The objectives on this page are therefore the company's own reasons, not endorsements by any regulator or exchange; whether the SEC approves or endorses an IPO is addressed on the IPO Basics and Definitions page. Facilitating capital formation is described by the SEC as one of the three parts of its mission, alongside protecting investors and maintaining fair, orderly, and efficient markets; that mission concerns the framework for offerings, not a judgment about any individual company's decision.

Objective a company may cite	Primary-source mechanism	What the mechanism does
Raise capital / broaden future access to capital	Reg S-K Item 504 (17 CFR 229.504) · source	The prospectus states the principal purposes for which the net proceeds to the registrant are intended to be used, or, absent a specific plan, the principal reasons for the offering; only primary shares the company sells produce proceeds for it.
Increase liquidity so owners and employees can sell more easily	Securities Act Rule 144 (17 CFR 230.144) · source	Provides the conditions under which restricted and control securities may be resold into the public market by a holder deemed not to be engaged in a distribution, and therefore not an underwriter; insider sales are also initially restricted by lock-ups.
Acquire other businesses with the public company's stock	Form S-4 (17 CFR 239.25) · source	The form prescribed for registering, under the Securities Act, securities to be issued in business combination transactions — including Rule 145(a) transactions, certain mergers, and exchange offers — so shares can serve as acquisition consideration.
Attract and compensate employees before the IPO	Securities Act Rule 701 (17 CFR 230.701) · source	Exempts compensatory equity issued by a non-reporting (private) issuer, capped in any consecutive 12-month period at the greatest of $1,000,000, 15% of total assets, or 15% of the outstanding class; the securities are restricted.
Attract and compensate employees after the IPO	Form S-8 (17 CFR 239.16b) · source	Available to a registrant already subject to Exchange Act Section 13 or 15(d) reporting, current in its reports, and not a shell company, to register securities offered to employees under employee benefit plans.
Create publicity, brand awareness, or prestige	SEC — Should My Company “Go Public”? · source	Listed by the SEC among the reasons companies cite; after the IPO, company information — including financial statements and disclosures about material contracts, customers, and suppliers — becomes available to the general public.

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