In the Indian share market, many companies decide to "go public" by offering their shares to the general public for the first time. But have you ever wondered why a private company would take this big step?
Going public is not just a financial move; it’s a milestone that changes the future of a business forever. It comes with rewards, risks, rules, and recognition.
In this detailed blog, we will explore everything about why companies go public, the benefits, challenges, and how it impacts investors, owners, and the Indian economy. Whether you're a beginner in the stock market or someone curious about IPOs, this article is designed for you.
What Does "Going Public" Mean?
Before we jump into the reasons, let’s first understand what going public really means.
When a private company decides to sell its shares to the public for the first time through an Initial Public Offering (IPO), it is said to be going public.
In India, this process is regulated by SEBI (Securities and Exchange Board of India). Once a company is listed on stock exchanges like NSE or BSE, anyone can buy or sell its shares.
To Raise Capital for Growth
The Main Reason – Money!
The most important reason why companies go public is to raise capital. Businesses need money to grow, and going public is one of the most effective ways to get it.
A company can use the money raised from the IPO to:
For example, when Zomato went public in 2021, it raised over Rs. 9,000 crore to fund expansion and customer acquisition.
Why Not Take Loans Instead?
Companies can borrow money from banks or issue corporate bonds, but loans come with interest and repayment pressure. By selling shares to the public, they can get funds without debt.
To Increase Visibility and Brand Value
A Company Becomes a Brand
Going public increases a company’s visibility. Once a company is listed, it gets media attention, analyst coverage, and public interest. This boosts its brand value and trust among customers and business partners.
Investor Attention
Public companies attract not just customers but also institutional investors, foreign investors, and mutual funds. This can help increase the stock price, leading to more value for the company and its stakeholders.
To Provide Liquidity to Existing Investors
Time to Cash Out
When a company is private, early investors and founders have their money locked in shares. Once the company goes public, these shares can be sold in the open market, giving them liquidity.
This is especially helpful for:
Going public gives them a reward for believing in the company early.
To Attract and Retain Talent
Stock Options = Motivation
Startups and growing companies often offer ESOPs (Employee Stock Option Plans) to attract top talent. When the company is public, employees can sell their shares and benefit from the company's success.
This builds a strong ownership culture where employees are motivated to work harder because they are also shareholders.
To Pay Off Debts
Clean Up the Balance Sheet
Many companies go public to reduce their debt burden. High debt can be risky and reduce profitability.
By raising money through an IPO, the company can:
For example, several infrastructure and real estate companies in India use IPO funds to reduce debt and improve financial health.
To Enable Mergers and Acquisitions
Buy or Be Bought
Public companies can use their shares as currency to buy other businesses. They can also attract better merger deals because of their transparency, valuation, and regulatory compliance.
Being listed gives them a competitive edge in M&A (Mergers and Acquisitions) deals.
To Expand Globally
IPO as a Launch Pad
Going public provides the financial and brand strength to expand internationally. For Indian companies looking to enter foreign markets, being a listed entity gives them more credibility.
Foreign clients and partners often feel more secure doing business with a public company.
To Comply with Investor Demands
Smart Investors Push for IPOs
Sometimes, the push for an IPO comes from existing investors. Venture capitalists or private equity firms want to exit and realize their returns.
They often request the company to go public after a certain growth stage to get better valuations and exit opportunities.
To Gain Market Feedback and Improve Valuation
Market Decides the True Worth
When a company goes public, its valuation is set by market demand. If the business is strong and profitable, the market will reward it with a higher share price.
This feedback helps the management understand:
To Build a Legacy
From Company to Institution
Some founders dream of building a company that lasts for generations. Going public is often part of that dream.
It shows the world that the company is here to stay, governed by rules, and trusted by the public.
Being listed gives the company a chance to:
What Is the Process of Going Public in India?
To go public, a company must follow the rules laid out by SEBI. The key steps include:
It is a detailed and strict process. SEBI ensures that companies give all necessary information to investors.
What Are the Requirements to Go Public in India?
Here are a few basic requirements set by SEBI:
There are also detailed compliance rules related to accounting, disclosures, and governance.
What Are the Disadvantages of Going Public?
While there are many benefits, going public also comes with challenges:
Loss of Control
Founders may lose control as new shareholders and board members come in.
Public Disclosure
The company must share its financials, strategies, and future plans publicly.
Regulatory Burden
Public companies must follow strict SEBI guidelines and file regular reports.
Market Pressure
Stock prices fluctuate based on market sentiment, even if the company is doing well.
High Costs
The IPO process, legal fees, and compliance costs are high.
So, companies must carefully evaluate if they are ready for this major step.
Real-Life Examples in India
Successful IPOs
Failed IPOs
These examples show that going public is not a guaranteed success. It requires planning, performance, and transparency.
What Happens After the IPO?
Once listed, the company becomes accountable to:
The company must release:
It must also hold AGMs (Annual General Meetings) and respond to shareholder queries.
How IPOs Help the Indian Economy
🇮🇳 More Jobs and Investments
When companies grow with public money, they create more jobs, more tax revenue, and economic development.
Also, the money raised from IPOs gets invested in:
This adds value to the Make in India initiative and strengthens the country's economy.
Summary: Why Do Companies Go Public?
Companies choose to go public for a variety of strategic and financial reasons that support their long-term growth and stability.
One of the main reasons is to raise capital. By issuing shares to the public, companies can gather funds needed for expansion, new projects, research and development, or improving operations. This fresh infusion of money supports overall business growth.
Going public also helps improve visibility. Being listed on a stock exchange enhances a company’s brand image and builds public trust, as it must comply with regulatory disclosures and transparent reporting practices.
Another important reason is to provide liquidity. When a company goes public, its early investors and founders have an opportunity to cash out some or all of their holdings by selling shares in the open market.
Public companies can also retain talent more effectively by offering stock options or shares to employees. This not only boosts motivation but also aligns employee interests with the company’s long-term success.
An IPO can help a company reduce debt by using the raised capital to pay off existing loans, which strengthens the balance sheet and lowers interest expenses.
It also facilitates mergers and acquisitions (M&A). Public companies can use their shares as a currency to acquire or merge with other businesses, which can accelerate growth.
Going public can support global expansion as it adds credibility in international markets, making it easier to raise funds, form partnerships, and enter new regions.
Companies also go public to meet investor demand, especially when early investors, venture capitalists, or private equity firms seek an exit route to realize their returns.
An IPO provides market feedback, allowing the company to understand its valuation, how it is perceived by the public, and how investor sentiment evolves over time.
Finally, some founders and companies aim to build a legacy by becoming a well-known, enduring institution. Going public can be a major milestone in creating a lasting corporate presence.
Final Thoughts
Going public is a bold move that can unlock massive opportunities for a company. It brings growth capital, brand value, liquidity, and legacy-building potential.
However, it also comes with responsibilities, regulations, and risks.
For Indian companies dreaming big, an IPO is a powerful tool. But the decision to go public should be based on clear goals, financial strength, and long-term vision.
So next time you hear about a company going public, you’ll know what’s really behind the headlines.
And if you're an investor, knowing why a company went public will help you decide whether its stock is worth your money.
Frequently Asked Questions (FAQs)
1. What does it mean when a company goes public in India?
When a company goes public in India, it offers its shares to the general public through an Initial Public Offering (IPO). This means the company is listed on a stock exchange like the NSE or BSE, allowing people to buy and sell its shares openly.
2. Why do Indian companies choose to go public?
Indian companies go public mainly to raise capital, improve brand visibility, pay off debt, attract better talent, and offer early investors an exit route. It also helps the company grow faster and become more trustworthy in the eyes of the public.
3. What is an IPO?
An IPO or Initial Public Offering is the first time a private company sells its shares to the public. It’s the official process of becoming a publicly listed company in India.
4. What are the benefits of going public for a company?
The main benefits include access to large capital, improved brand image, increased trust, stock-based employee benefits, and easier access to loans and credit.
5. What are the risks of going public for companies?
Going public has risks like regulatory scrutiny by SEBI, pressure to show quarterly profits, high IPO and compliance costs, and possible loss of control due to shareholder voting.
6. Do all companies need to go public to grow?
No, not all companies need to go public. Many businesses grow successfully through private funding, venture capital, or retained earnings without ever being listed on the stock market.
7. How is going public regulated in India?
The Securities and Exchange Board of India (SEBI) regulates all IPOs and listings. It ensures that companies follow proper rules to protect investor interests.
8. What are the requirements to go public in India?
To go public, a company must have a strong financial track record, positive net worth, a certain amount of paid-up capital, and follow SEBI guidelines. It must also prepare a draft red herring prospectus (DRHP).
9. Can a company go back to private after going public?
Yes, a company can become private again through a process called delisting, but it requires approvals from shareholders and regulators.
10. How do shareholders benefit when a company goes public?
Shareholders can sell their shares in the open market and potentially earn big profits, especially if the company performs well after the IPO.
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