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Lesson 11. Options and the IPO > Securities Laws - Pg. 52

Options and the IPO 52 · They need to raise large sums of money that is not debt. They use the money to fund a massive expansion of products and services. · The founders of a private company want to create liquidity for the stock. · Investors other than the founder want to create liquidity for the stock. This group often includes venture capitalists who have provided early funding for the company and want to earn a return on their investment. · Stock and stock options in a publicly traded company are easier to value and attractive incentives to recruit and retain key employees. Although employee ownership is sometimes cited as one of the reasons to take a company public, there are other means to accomplish this goal. We'll look at some of them in Lesson 13, "Employee Stock Purchase Plans," and Lesson 14, "Employee Stock Ownership Plans." The IPO process is a complicated legal and marketing experience that is not within the scope of this book. However, a quick summary is in order to set the rest of this chapter in the proper context. An IPO changes the essential nature of the corporation from one with few owners and little reporting requirements to one with many owners and complete disclosure of every facet of the company. Private companies, for the most part, can keep their books closed to the outside world, while public companies must disclose any fact that may impact the price of its stock. For example, if any senior officers leave or have health problems, the company reports that information to the public. Plain English A private company has just a handful of investors, in some cases just one investor. The company's stock does not trade on any public stock exchange. Investors and stock analysts study public companies thoroughly. Any weaknesses are noted and