Forced Initial Public Offering - IPO

There are pluses and minuses to being a public company. If your stock is available on public exchanges, it's easier to raise money. Need cash? Just sell some stock.

On the downside, a public company faces increased regulatory scrutiny. Also, public companies must release certain financial information on a regular basis (quarterly earnings reports, etc.). These disclosures give competitors an idea of what's going on in the company.

In general, it's up to a company whether it wants to become a public company or not. However, government regulators have rules that can force a company to disclose financial information publicly. These provisions kick in when a company gets big enough and has enough shareholders.

The rules don't necessarily force the company to sell its stock on the public market. But a company that meets the conditions might as well do so. Once it reaches that stage, it has all the reporting requirements, with none of the access to public markets.

That situation represents a forced IPO (an IPO, or initial public offering, is the process by which a company first sells its shares to the public). The SEC, as the main regulator of U.S. markets, says that when a company gets big enough and has enough shareholders, it must report information to the public.

You launch a computer startup in your garage. You are the sole shareholder (of all the computer parts strewn around the lawn mower). You don't have to answer to anyone...all your financial information is kept between you and the IRS.

You start to grow as a company, adding shareholders as you go. Eventually, you have assets of over $10 million and more than 500 shareholders. The SEC sends you a letter: you're going to have to start disclosing your financial info. You decide you might as well launch an initial public offering. A forced IPO.