(a) Providing Companies Access to Long-Term Funding
This is the primary consideration for companies that want to go public and become a public company. Capital obtained from the capital market can be used to increase working capital in order to support the growth of the company, to pay out debts and to make investments or acquisitions.
Going public will also increase the equity value of a company so that the company may have the optimal capital structure.
After becoming a public company, a company can take advantage of the capital market to obtain further funding, through limited public offering, which is restricted to current investors, or through secondary offering and private placement. After going public, attracting strategic investors to invest in the company will also be easier.
By becoming a public company listed at the Indonesia Stock Exchange, banks or other financial institutions will have more trust in the company. The banks can get acquainted with the company’s financial condition anytime through disclosures of information submitted by the company through the Stock Exchange. Under these conditions, not only will the lending process become relatively easier, but the interest rate will possibly become lower considering the credit risk of publicly listed companies is relatively lower compared to private companies.
Aside from that, by becoming a public company, the company will have easier access to issue bonds, both short term and long term. In general, bond investors prefer if a company issuing the bonds is well known and maintains a good company image. This condition will not only greatly help facilitate the issuance of debt, but also allows the company to issue a bond with a competing rate of interest.
(b) Increasing the Company’s Value
By becoming a public company listed at the Indonesia Stock Exchange, the public can easily obtain information on the movement of the company’s value at any time. Any improvements in the company’s operational and financial performance will generally have a positive impact on the company’s share price, which will ultimately increase the value of the company as a whole.
If the company founder/owner needs funding for other purposes, divestitures can also be done through the Indonesia Stock Exchange with optimal value. An active trading of shares in Indonesia Stock Exchange can create a price that can be used as a reference by shareholders for their transaction.
(c) Improves the Image of the Company
By becoming a public company listed at the Indonesia Stock Exchange, information and news relating to the company will be frequently covered by the media, data providers and securities analysts. These publications are provided free of charge and will help enhance the company’s image and exposure of the products produced by the company, creating new opportunities and a broader customer base for the business.
(d) Encouraging Employee Loyalty
If a company’s shares are traded in the Stock Exchange, employees will gladly receive incentives in the form of shares. By getting the employees involved in the company growth process, it will help create a sense of ownership among the employees, which in the end can improve employee professionalism and work performance.
In addition, an employee stock allocation program or stock option is also a strategy a company can use to retain key employees, without spending the company’s cash. Employees can benefit from selling their stock incentives obtained from their company through the Indonesia Stock Exchange.
(e) The Ability to Maintain Business Sustainability
One of the common issues that trigger’s the downfall of a family owned business is a dispute between family members. By becoming a public company, family members can own shares of the company in their respective portions and can sell or buy more shares through the Indonesia Stock Exchange. The founding shareholders can also entrust their shareholdings to the company’s management who are more professionally competent and can easily oversee the company through a financial report or information disclosure mandated by authorities.
In the event a company is suffering financial difficulties, failure to repay debts to creditors and requires debt restructuring, the debt to equity swap strategy can be an alternate way out for both parties. Creditors, who received shares from debt conversions, can sell the shares through trading mechanisms at the Indonesia Stock Exchange. Such strategy will not be easy to do if the debtor is a private company.
(f) Tax Incentives
To encourage companies to go public, the government provides tax incentives through Government Regulation No. 56 Year 2015 Concerning Amendment on Government Regulation No. 77 Year 2013 Concerning Reduction on Income Tax Rate for Domestic Public Corporation Taxpayer. The Domestic Public Corporation Taxpayer can obtain a decrease in income tax rate (PPh) of 5% lower than the price of the mandatory domestic entity income tax, as long as 40% of the company shares are publicly listed and traded on the Exchange and have at least 300 shareholders.