Companies must have a special strategy to get ahead of their competitors when business competition is getting tougher. Unfortunately, there are many obstacles faced by companies in implementing this strategy, one of which is financing. However, the capital market provides a solution, namely by changing the company’s status from closed to open. This solution can be done by offering shares to the public or called go public.
All private companies have the opportunity to become public companies by offering and selling part of their shares to the public, thereby opening up opportunities for the public to own the company (invest capital) and list their shares on the Indonesia Stock Exchange (IDX) or referred to as the “Bursa”.
In addition to the benefits obtained from the stock investors’ side in the capital market, it turns out that many benefits can be obtained from the side of companies that decide to go public.
1. Obtaining a New Source of Funding as a Means of Long-Term Funding
After doing go public, the company will get additional capital from the shares sold. This capital can be used to finance the company’s growth, pay for acquisitions, pay off debt, or even reinvest. Doing go public will also increase the company’s equity value so that the company has an optimal capital structure. In addition, the positive impact of making a public company whose shares sell on the stock exchange is to ease the company’s access to issue debt securities, both short term and long term. In general, investors will prefer to buy bonds issued by companies that are well-known and have a good reputation in the financial world. Such conditions certainly not only help in facilitating the issuance of debt securities but also increase the possibility that a company can issue debt securities with more competitive interest rates.
2. Increase Company Value
The positive influence of public companies whose shares are traded on the Indonesia Stock Exchange is that the public can obtain a valuation of the company’s value at any time. In the end, increasing the value of the company as a whole becomes the impact of any improvement in operational and financial performance in general. Becoming a public company whose shares are traded on the stock exchange, will increase the value of the company which comes from the increase in the value of the company’s equity from additional public capital deposits. Companies that go public will be managed with the principles of good corporate governance so that the value of the company also increases.
3. Improving Corporate Image
Companies owned by the community encourage information disclosure or transparency. The company will always receive the attention of the media and the financial community. This disclosure of information will enhance the company’s image as well as broader product introduction to create new opportunities and new customers in the company’s business. This positive impact is felt by many small to medium-scale companies because by becoming a public company whose shares are traded on the stock exchange, their image becomes on par with other companies that have a larger business scale and longer experience so they can also create new opportunities in business companies.
4. Ability to Maintain Business Continuity
By becoming a public company, the company’s ability to maintain its survival will be far better than a private company. By becoming a public company, the various obstacles and problems faced by the company to survive and develop are no longer only a problem for the company’s founders but also for many parties who are the company’s shareholders. For example, if there are financial problems such as debt repayment failures, there will be a way out for creditors, namely through the conversion of debt into shares where these shares can then be sold to the public through a share trading mechanism on the stock exchange.
5. Providing Competitive Advantage
Companies that go public will gain many competitive advantages for future business development. Go-public companies can invite their business partners or customers to become shareholders of the company. That means a relationship that was originally only a business relationship can become a higher relationship.
This advantage can also be seen in the products produced by the company. In fact, it can lead to an advantage over rival companies. People who initially did not know a company, now know and have the desire to buy shares. By doing go public, the company is also required to improve the quality of its operations, products, and services. This will then have an impact on the company’s performance which will also increase.
Companies that go public will also receive more attention in general. Announcing it to the public means that the company will continue to be noticed by the general public at large. Community responses will also be more varied.
6. Tax Incentives
The government provides tax incentives to companies that go public based on Government Regulation no. 56 of 2015 concerning Amendments to Government Regulation Number 77 of 2013 concerning Reducing Income Tax Rates for Domestic Corporate Taxpayers in the Form of Public Companies. Domestic corporate taxpayers in the form of public companies can obtain a reduction in income tax rates of 5% lower than the average rates for domestic corporate taxpayers, provided that:
- Shares that have been listed and traded on the Exchange at least 40%.
- Has a minimum of 300 shareholders with the condition that each party may only own less than 5%.
- These requirements must be met within a minimum period of 183 calendar days or for one tax year.
The more companies that go IPO and become public companies, the more it will help Indonesia’s economic growth rate. In addition, state tax revenues will also increase in line with the development of the domestic capital market.
One successful example of a go-public company is Mark Zuckerberg’s company, Facebook. Mark was even named “The Youngest ‘Self-made’ Billionaire on the Planet” in 2008 by Forbes magazine thanks to his efforts to develop Facebook. The 8th richest person in the world has a net worth of 62,300,000,000.00 USD or around 872,200,000,000,000.00 IDR (exchange rate of 1 USD = 14,000.00 IDR).
Almost all of this wealth comes from shareholding in Facebook which conducted an IPO in 2012. As time has gone on, Facebook’s business continues to grow, Facebook’s share price in March 2019 has even reached 166 USD per share or has experienced an increase of more than 4 times compared to the stock price in March 2019. during the 2012 IPO, which amounted to 38 USD per share.
One reason why a company conducts an initial public offering to the public is that they cannot raise funding from the private sector, and want to offer different valuations between the private and public sectors. A company does not have to make a profit first to be included in the IDX list.
That’s the explanation of the company that went public. It can be concluded that a company that goes public means carrying out a procession of public initial offerings whose shares can be owned by the public on the Indonesia Stock Exchange. Hope this article is useful!
(Abstracted by: Lavy El Harisy)