What Is Flotation?

Flotation is the process of converting a private company into a public company by ༒issuing shares and making th⛎em available to the public for purchase.

It allows companie🍃s to obtain financing externally instead of using retained earnings to fund new projects or expansion. Flotation can also apply to companies issui❀ng additional shares after its initial public offering (IPO).

The term "flotation" is commonly used in the United Kingdom, whereas the term "going public" is more widely used in the United States.

Understanding Flotation

While flotation provides access🌞 to capit✨al, the expense, time, and effort associated with going public by issuing new stock must be examined.

Early Stage Flotation

For young companies, flotatio♔n requires caution due to its various costs. It requires careful timing, company structure changes, the ability to withstand public scrutiny, compliance with new regu𒆙lations and compliance costs, as well as the time and effort needed to execute the flotation and attract new investors.

Later Stage Flotation

Companies in mature phases of growth may also need funds for various reasons, such as expansion, inventory, research and development, and new equipment. For this reason, the time, effort, aꦏnd monetary costs of going public are often deemed worth it.

Follow-On Offerings

After they've gone public, companies may at certain times need to raise additional capital. They can engage in flotation again with a 澳洲幸运5官方开奖结果体彩网:follow-on offering of new shares.

Flotation Process

If a company decides to pursue flotation, it typically enlists an 澳洲幸运5官方开奖结果体彩网:investment bank as the lead 澳洲幸运5官方开奖结果体彩网:underwriter. The underwriting investment bank typically leads the process of conducting an 澳洲幸运5官方开奖结果体彩网:initial public offering (IPO).♍ It helps the company determine the amount of money to be raised from the public market issuance.

The investment🌠 bank also assists with the documentation requirements for becoming a public company. It 🗹will develop and produce an investment prospectus.

It will also market the company’s offering in a roadshow prior to the initial stock issuance. A roadshow is a sales pitch to potential inves🤪tors by the u🌼nderwriting firm and executive management team of the company about to go public.

Gauging demand during the roadshow is an important step in determining the final IPO share price, as well as in determining the ultimate number of shares to make available for issuance.

Alternatives to Flotation

When considering flotation as a means of raising capital, companies may as🧸sess private fundꩲing opportunities before making a final decision to go public.

These alternative sources of funding may include small business loans, equity crowdfunding, angel investors, and investment from venture capitalists. Private placement of securities to raise money is also an option. However, when seeking private funding, companies will incur legal fees and costs for deal structuring and accounting.&nbs🎀p;

Many private companies may choose to raise private funds rather than go pu♈blic to avoid financial transparency requirements and ⛎the high costs associated with restructuring and an IPO.

Advantages and Disadvantages of Flotation

Advantages

Share liquidity: By issuing new sha♏res to a multitude of potential buyers, a company can make it possible for its early investors, such as venture capitalists, to realize a return on their investments.

Access to capital: Selling shares to the public can raise much needed funds which can be used in a variety o🎶f ways to build a business.

Equity rather than debt: Issuing shares, or equity, to raise capital instead of issuing debt is a benefit because equity doesn't have to be paid back. Loans do.

Increased public awareness: Going publicꦏ means 🥂a greater public focus on a company and its brand, which can promote sales and revenue.

Disadvantages

Increased regulation: Companies that issue shares to the public must a♔bide by certain SEC regulations that private companies aඣvoid.

Greater public scrutiny: After flotation, publicও companies are required to disclose a large amount of financial information every year. This can put enormous pressure on management and a board of directors.

Diluted ownership:♈ Issuing shares means less✃ ownership control for founders and executive management. It can also lead to demands made by majority shareholders.

Share price fluctuations: Regardless of how well a company performs, ♋the market and economic news can affect share value in negative ways.

The Bottom Line

Flotation refers to the floating of a new issue of securities in the stock market when a private company goes public, or a public company issue꧃s additional shares after its IPO.

Flotation can involve a great 💎deal of effort, 🌃time, and expense. It means that a company will have to adhere to government regulations regarding the disclosure of financial and, possibly, confidential information. Moreover, it can mean increased pressure on executive management due to a high level of ongoing public scrutiny.