Initial Public Offering: Google Essay

1575 words - 6 pages

A start-up corporation may have its inception through privately invested funds or through procuring funds through a venture capital firm or a composite of both funding sources. Venture capital is defined as "money invested to finance a new firm" (Brealey, 2004). Venture capitalists often hold seats on the company's board of directors and provide input in the composition of the senior management team that leads the company. In the chronological development of a successful company, likely there will come a time when growth opportunities and expansion plans call for more capital than can reasonably be obtained through continued investment by venture capitalists. How does a company raise the capital it needs to continue its development? One option is to sell shares in the company to the public, which is an "initial public offering (IPO)" (Brealey, 2004).Google's decision to expand and acquire a larger customer base led to their IPO on August 19, 2004. The difficulties faced by Google are no exception, many companies struggle with the decision of going public and timing. The loss of some control and the requirements can deter some companies from taking that leap, as is illustrated each step in establishing an IPO below. In this paper we will briefly discuss the financing issues that come about when a company goes public. There are many items to be aware of when a company makes this decision to go public. A company needs to understand the process of issuing securities, ways to advertise the stock before it is sold, getting the names straight on the newly issued stocks, the basics of underwriting and the different types of underwriting agreements. These are the staples that an organization needs to be informed on in order to start successfully. We will also address registration, disclosure and compliance issues, the cost of issuance, the impact on ownership and control, and the source and application funds.Registration, Disclosure, and Compliance IssuesAn Initial Public Offering (IPO) is the first sale of a corporation's common shares to the public investors. The main purpose of an IPO is to raise capital for the corporation. While IPO's are effective at raising capital, they also impose heavy legal compliance and reporting requirements. The term only refers to the first public issuance of a company's shares; any later public issuance of shares is referred to as a Secondary Market Offering (Wikipedia, 2007).A company can become "public" in one of two ways - by issuing securities in an offering registered under the Securities Act or by registering the company's outstanding securities under the Exchange Act requirements. Both types of registrations trigger on-going reporting obligations for the company. If a registered public offering is used the Securities Act requires the company to file a registration statement with the Securities and Exchange Commission before the company can offer any securities for sale. The disclosure has two parts which include...

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