Disadvantages of investing in IPO'S(Initial Public Offerings)

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What are the disadvantages of investing in IPO's(Initial Public Offerings)?


  • Laborious decision making process 
  • Reporting costs will go high.
  • Soaring upfront cost.
  • Augments liability. 

  1. Laborious decision making process :
When you sell too much of your shares, and your shareholders elect the majority of the board of directors. So, any decision should be given thumbs up by the board members or at least the majority of the share holders. Earlier the decision-making process which finished within a few hours in the meeting room, will now,  take days. How much ever you try to keep your focus on the actual business goals, the stockholders who hold minimal shares individually, on coming  together, can pressurize you to move away from it.

  1. Reporting cost will go high:
The Public company information will have rolling costs for periodic reports and proxy statements that are filed with the regulatory agencies and distributed to the shareholders. The company should do audits and any other public company compliance procedures. Every procedure and a report has a cost attached to it.
  1. Soaring upfront cost:
Offering shares to public is not cheap at all; it has a huge upfront cost. It involves under-writers commission, accounting and legal fees, printing charges, road show expenditures, advertising costs and registration fees.  Management and accounting system must be upgraded. The departments which handle pesky analysts and you need to get people who are qualified to sit in your company’s board.
  1. Augments liability :
Going public with your Company augments the potential liability of the company and its executives for mismanagement. Legally, a public company has an obligation to its shareholders to capitalize on shareholder profits and declare operational data. The company and its management can be prosecuted for self-dealing, making material misrepresentations to shareholders or omitting information that the centralized securities laws require to be disclosed.


All said and done, before going public sit with your private group of shareholders, assess the company’s financial situation. Make sure you can bear the cost of becoming a public company. If you can overweigh the future capital gain to the current costs, go ahead with the IPO. Nobody is stopping you!

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