A company can increase liquidity of its shares by listing on a stock exchange.
Andrew Gillespie in his book, "AS Level Business Studies Handbook," describes a public limited company as one "that is owned by shareholders but the shares can be advertised and traded on the stock exchange." The formation of a public limited company is based on various objectives, including expansion of company operations into other markets, increased liquidity for shareholders, survival in competitive markets, increasing the market share and limiting liability for the shareholders.
Expansion
Businesses experiencing growing demand in their operations require additional resources to finance new projects. A number of firms are forced to go public to raise additional financing. A public company is more likely to meet a relatively larger portion of its financing requirements through raising equity. Equity financing results in the dilution of ownership in the company, but at the same time it strengthens the business by maintaining reasonable debt levels and relieves the company from heavy interest payments.
Liquidity
Private ownership in a company can be relatively difficult to liquidate because of the lack of an established market for privately owned firms. Listing a company on a stock exchange establishes a secondary market for company shares and a price for company stock is determined by the market. Publicly listed company shares generally tend to be more liquid and can be easily bought and sold in the stock market.
Survival
In certain cases a company needs additional financing to facilitate its very existence. Competition can often force companies to expand operations if they intend to survive. Thus survival can be another important objective for a company to go public.
Market Share
Organizations may list on the stock exchange to get more media attention and enhance their current standing in the product markets. The public listing can help the company enhance its positioning in the market and establish a stronger brand.
Limited Liability
The shareholders of a public limited company have limited liability. The most that they have at stake in the company operations is the total value of their investment in the shares of the company. The limited liability feature is not unique to a public limited company, but is one of the objectives a sole trader or a partnership aims to achieve.
