A growing number of entrepreneurs, faced with spiraling accounting costs and stiffer corporate governance rules, are choosing to keep their startups private or sell them to a rival rather than take them public.For young companies, the choice between going public and selling to a rival was once an easy one. That’s because an IPO generates a much higher return — as much as a third higher, according to some studies — for the company’s executives and early investors.
But in the wake of corporate reforms prompted by a series of accounting scandals, the decision is no longer clear-cut.
john dmohowski on September 5th, 2004 at 12:40 pm
The article presents a good case for staying private or selling to a non-public rival but glosses over a critical SOX unintended consequence. Any small company that may decide later to go public or be acquired by a public company will have to pass serious governance and financial scrutiny at that time. Perhaps far more intensive in time and resource than would be consumed in bringing a small business into compliance.
Owners of a private company can certainly decide to delay complying with SOX guidelines. But they must do so knowing that the longer they operate in a non-compliant fashion, the more effort it will take to bring the organization into compliance should that become necessary to secure financing or be acquired. SOX is an issue for any company that is public or will someday be public or might be acquired by another public company. Just one more thing for entrepreneurs to think about as they plan the future of their growing enterprise.