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What happens when a private company goes public?

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Quick Answer

When a private company goes public, it begins selling equity in the company in the form of shares of stock, which are traded on the stock market. The first sale of equity through an investment banking firm is called an initial public offering, or IPO, according to Entrepreneur.

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Full Answer

Public companies offer stocks on a public stock exchange for anyone to purchase. Only invited investors, including individuals and venture capital firms, may purchase equity of a private company, explains Manisha Thakor for LearnVest Planning Services. A private company becomes public when it offers its shares to any investor.

A company may go public if it can expend at least 25 percent of its equity. Because of the large expense of going public, only private companies of a certain size are capable of offering shares to the public. Some of the reasons a company may choose to go public are the need for more capital than it receives through venture capital firms, the need of permanent capital it does not have to pay back or the prestige of being a public company. Going public can attract loyal employees, provide access to direct capital markets and allow the company to raise funds more easily, notes Entrepreneur.

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