What is a flotation?
Flotation is the process of transforming a private company into a public company by issuing shares that are available for purchase by the general public. This allows companies to raise funds externally instead of using retained earnings to fund new projects and expansions. The term “flotation” is commonly used in the United Kingdom, but the term “public” is more widely used in the United States.
- Flotation, also known as “public,” is the process of transforming a private company into a public company by issuing shares that are available for purchase by the general public.
- While levitation provides companies with new access to capital sources, the additional costs associated with issuing public shares should be considered when considering a switch from a private company to a public company.
- Companies in the mature stage of growth may decide to pursue levitation because they need additional funding for a variety of reasons, including expansion, inventory management, R & D, and new equipment.
Levitation requires careful consideration of timing, company structure, the company’s ability to withstand public oversight, increased regulatory compliance costs, and the time required to perform levitating and attract new investors. Levitation provides access to new sources of capital, but when considering a switch from a private company to a public company, the additional costs associated with issuing new shares must be considered.
Companies in the mature stage of growth may need additional funding for a variety of reasons, including expansion, inventory management, R & D, and new equipment. For this reason, the time and financial cost of becoming a publicly traded company is often considered worth it.
When companies decide to pursue levitation, they usually involve investment banks as underwriters. Underwriting investment banks usually lead the process of conducting an IPO and help companies determine the amount they are seeking to raise from public market issuance.
Investment banks also support the documentation requirements for becoming a public company. Banks prepare an investment prospectus and market the company’s offerings at a roadshow prior to the first share issuance. Roadshows are pitches to potential investors that the underwriter and the company’s management team are trying to expose. Measuring demand during a roadshow is an important step in determining the final IPO share price and in determining the final number of shares that can be issued.
Advantages and disadvantages of levitation
When considering levitation as a means of financing, companies may also look to other private sources before deciding to become a public company. These alternative sources of funding may include investments from small business loans, equity crowdfunding, angel investors, or venture capitalists. However, even if you seek additional private funding, the company will incur attorneys’ fees and additional costs to structure and account for the transaction.
Many private companies choose to receive private funding for the benefit of less transparency requirements. Private companies may also want to maintain private funding due to the high costs associated with restructuring and initial public offerings (IPOs).