Why do companies go public (IPO)?
Show answer & explanation
Answer: Raise capital by selling shares
Raise capital by selling shares ✓ — Correct! Initial Public Offerings (IPOs) let companies raise large amounts of capital by selling shares to public investors. This money funds expansion, R&D, debt repayment, or acquisitions without taking loans. Going public also increases company visibility, enables stock-based employee compensation, and lets early investors cash out.
Law requires large companies — Wrong. No law requires companies to go public. Many large successful companies (like privately-held firms) choose to remain private to avoid public disclosure requirements, quarterly earnings pressure, and regulatory costs. Going public is a strategic choice, not a legal mandate.
Avoid paying corporate taxes — Wrong. Going public doesn't reduce taxes—public companies often face more scrutiny on their tax practices. IPOs are about raising capital by selling ownership stakes to investors, not tax avoidance. Public and private companies pay the same corporate tax rates.