Reasons NOT to Take Your Company Public

When you’ve got the industry blinders on, you begin to trick yourself into believing that a reverse merger or direct public offering is the right solution for 90% or more of businesses either looking to raise capital or experience a liquidity event. Unfortunately in our line of business, this is not always true. The entrepreneurs are not always the ultimate winners.

Luckily, when this is the case, we’re typically pretty vocal about telling clients there likely isn’t a fit. Sometimes a non-fit occurs across the business spectrum, from startups to established businesses. Avoiding a “go public” transaction is often a matter of personal opinion of the owners and founders.

Private Means Private

When a company is public—unless it’s taken public on the pink sheets—the amount of disclosure required can be somewhat onerous. Any bad news will need to be disclosed quickly. Such news can effectively tank the value of the stock. That’s part of the risk. Remaining private means all information remains private. Financials will not be viewed with the same scrutiny. In fact, they’ll not be viewed at all. The difference in cost between both accounting and tax fees on an annual basis between a private and public company can range from $20,000 to $100,000.

For owners who value confidentiality, remaining private often makes the most strategic sense. Competitors cannot scrutinize your margins, customers cannot second-guess your financial health, and employees are spared the anxiety that comes with daily stock price swings. Many middle-market founders discover that a well-structured private sale or recapitalization delivers the liquidity they need without surrendering the operational privacy they value.

Cost Considerations

If you can find the right PCAOB-compliant accounting firm and legal group to perform your financial and reporting requirements, the cost can be mitigated somewhat, but the cost is still much higher than for a private company. In addition, the cost of investor relations, communication and other legal issues may prove much too taxing for many a private company. There are other fees not typically considered, including those in the initial up-front cost to be listed on the exchange, which isn’t exactly cheap. The upfront cost of going public and the on-going cost can be a deterrent, even if a company can raise $1MM+ from the initial launch.

Beyond audit and legal fees, public companies routinely absorb costs for SOX compliance, annual shareholder meetings, proxy filings, and D&O insurance premiums that bear no resemblance to what a private firm pays. Management time is equally expensive: executives at newly public companies often report that investor relations activities consume a meaningful share of senior leadership bandwidth, time that would otherwise drive revenue and product development. Before committing to a listing, founders should model total-cost-of-being-public, not just the IPO itself, across a realistic three-to-five-year horizon. If the equity financing objective can be met through a private capital raise, the economics typically favor staying off the exchange.

Legal Exposure

The legal exposure of a public company is leagues above that of a private business. Ask anyone who’s taken their company public and who has been sued while managing a public business and they’ll tell you that sometimes it’s not a matter of if, but when and for how much. Additionally, public companies are often exposed to macro market conditions and schemes by market manipulators that can effectively put the company at risk of litigation. In essence, the company remains responsible over things outside its immediate control that can come back to bite them later. It’s ultimately never good to be punished for things outside your control. Legal issues in a public company represent the worst arena for this.

Securities class-action suits, derivative claims, and SEC enforcement inquiries are realities that private firms rarely encounter. Short-sellers can publish aggressive reports targeting the stock, triggering price dislocations and legal exposure even when the underlying business is sound. Public directors face personal liability for forward-looking statements that miss targets—pressure that rarely applies to privately held boards. For many founders, the reduced legal surface area of remaining private is itself a compelling reason to explore private capital alternatives before considering a public listing.

Alternatives Worth Considering Before Going Public

The motivations for being public are as varied as the businesses themselves. Deal structure also represents a highly customized fit for each firm. No cookie cutter options exist here. Many a company has made its fortune from doing direct and initial public offerings. But the risks need to be heavily considered before jumping in with both feet. In some cases, going public will be an absolute no-brainer, while in other instances going public may be the answer for someone with no brain. What you choose is often situation dependent as the risks and issues presented above may be immaterial for a company with a specific business plan for growth.

Founders who need liquidity but want to avoid public-company burdens have a meaningful menu of options. A partial recapitalization with a private equity sponsor can deliver significant cash-out while leaving management in control. A strategic sale to an industry acquirer can maximize total enterprise value and provide a clean exit. A management buyout funded through debt financing can transfer ownership to an internal team without any public markets exposure. Evaluating these paths alongside a potential IPO—rather than treating the IPO as the default—leads to better outcomes for most middle-market businesses. For guidance on assessing the right structure for your situation, explore our articles on Reg A+ vs. S-1 vs. Reverse Merger and on why going public is not always a good liquidity strategy.

Frequently Asked Questions

What are the biggest hidden costs of going public?

Beyond investment bank underwriting fees, founders are often surprised by ongoing audit fees for PCAOB-registered firms, SOX compliance costs, D&O insurance premiums, and the internal headcount needed to manage SEC reporting deadlines. These recurring costs can run $500,000 to $2 million annually for a newly public small-cap company.

Can a company raise significant capital without going public?

Yes. Private placements under Regulation D, Regulation A+ offerings, and direct loans from private credit funds allow companies to raise substantial capital—sometimes in the hundreds of millions—without the disclosure burden or ongoing costs of a public listing.

How do buyers and sellers typically weigh going public vs. a private sale?

The decision usually comes down to liquidity needs, control preferences, and risk tolerance. A private sale often delivers a cleaner, faster exit with less regulatory exposure, whereas going public can create currency for future acquisitions and broader brand recognition. Neither path is universally superior; the right answer depends on the specific business, market conditions, and owner objectives.

When does a reverse merger make sense over a traditional IPO?

A reverse merger can be faster and less costly than a traditional IPO, making it attractive for companies that need to access public-market capital quickly or that may not meet the revenue thresholds required by major exchanges. However, reverse-merger shells carry their own legal and reputational risks and typically trade at lower valuations than companies that completed a traditional offering. Careful legal and financial diligence is essential before pursuing this path.