African Stock Exchanges and Going Public

On Entrepreneurship

You don’t have to “go public” to be a great business, but you need to be a great business to “go public.”

In modern economies, most businesses owners limit their liability by forming and conducting their business in a separate legal entity called a “corporation.” The corporation issues shares of stock that represent its ownership. For example, if a corporation issues a total of 10,000 shares of stock, someone who owns 4,000 shares owns 40 percent of the corporation (4,000 shares of the 10,000 shares outstanding).

“Going public” describes the process by which a corporation sells shares of its stock to “public” investors. As part of the going public process, the corporation and its shares are registered on a stock exchange where anyone who has the money can purchase the company’s stock and can become a partial owner of the business. Likewise, anyone who owns shares in the corporation can use the exchange to sell their shares to another “public” investor.  An efficient market is created when there are a significant number of sellers offering shares and buyers bidding for shares of the same stock.

The primary reason that a corporation “goes public” is to raise new funds to invest in its business. However, this method of raising capital is not available to early-stage or start-up businesses. It is only available to large, well-established, profitable companies that can assume the responsibility and expense of having public investors. Corporations with publicly-traded stock are subject to significantly more rules and greater disclosure requirements to ensure that all their shareholders are treated fairly and receive frequent and objective information about the company’s activities and financial performance.

Vibrant stock exchanges provide the capital to build great publicly-traded businesses – companies that grow their revenue and profits year after year; provide products and services for their customers; jobs for their employees; sales for their supplies and vendors, tax revenue for their communities and nation; and increasing wealth for their shareholders. They transform lives and communities. I know because I live in Arkansas, a small state in the U.S., which is home to some of the most successful public companies in the world – Walmart (retail stores), Tyson Foods (meat production), J.B. Hunt (trucking), Dillard’s (department stores), Murphy Oil (energy) and Alltel (telecom merged into Verizon).

Africa’s surging economies are expanding, developing and changing quickly. New businesses of all sizes are emerging and growing – micro, small, medium and large, well-established enterprises. Over the coming years, Africa’s business winners will begin to appear and access to new capital will become an essential ingredient for their success. When that time comes, Africa’s stock exchanges will make all the difference.

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