Initial Public Offering (IPO)
Using subsidiaries allows you to have an initial public offering ( IPO ) for that subsidiary and thus make your subsidiary tradeable at the stock exchange. You can’t do that with holdings.
Personally, I use subsidiaries as well, but for me, it’s more for aesthetics, as I am not interested in IPOing (that’s a terribe abbreviation).
How much you gain
Should you decide to IPO, 25% of your current value will be available for signing in the form of shares. The IPO is considered successful, if more than 50% of that value are being invested in you. A maximum of a theoretical 200% of that value can be invested. This money will be available to you, obviously. However, you lose control of 20% of the total shares, the remaining 80% remain with your holding (or more precisely, the parent company that has founded the particular subsidary). You remain in control of a company for as long as you are the (relative ) majority share holder.
If you are on the investing-side of an IPO: If 50% of the available shares get signed, you will actually receive twice the number of shares you originally signed up for. their value is only at 50%, though, so that you still end up paying the same for twice the product.
If 200% get signed, the value of a single share is twice what it was assumed to be and you will only get hälfte he numbers of shares you signed up for.
So basically, you don’t really sign a number of shares but only decide how much money you want to invest in that company.
Why I don’t IPO
The reasons I do not IPO are, that
a) your financial information and certain interna become publicly available to everyone holding at least one single share,
B) you have to pay dividends (only 15% of profit, but still money I don’t want to lose),
c) since there was a lot of cheating in the past, the exchange market isn’t really an exchange market where demand and supply define the price. The value of a share is directly linked to the value of your company and trades must happen within a very small margin of that value,
d) it is not possible to go private again, even if you manage to retrieve every single share.
A rough estimate at IPOs
The only “benefit” appears to be the investment of others into your company. However, if I do the math, I don’t see a real benefit here.
Let’s say you were to IPO at your starting value of 10 millions. 2.5 million worth of shares become available. At least 1.25 million has to be invested in you to make the IPO work, a maximum of 5 million can be invested. Let’s take those as upper and lower limit.
With your current situation in CCS, I am expecting you to generate a profit of round about 1 million $ / week => 15% => 150k in dividends => 20% for others 30k. for the lower limit, that means 1.25 / .03 = 42 weeks, for the upper limit 160 weeks. Sure, that sounds a lot, BUT: if you can make 1 million after the first week and if you do a good job, you make 10 millions after four month (that is a conservative guess based on my own experience). I am making some mathematical assumptions here, if you want me to explain them, just let me know. however, a rough estimate gives you a total dividend payments to foreign investors of 4 months * 4,3 weeks/month * 3,3 million average profit/week (assuming a qubic growth of your profits) * 0.15 (dividend rate) * 0,2 (share of forein investment) = 1.7 million. So you more than paid back the lower limit already. Even if you only maintaince that profit, you add another 300k to that every week, so you have paid back the upper limit after another 11 weeks or slightly more than half a year total.
Now, you could argue, that by gaining access to additional money early allows for additional growth that expotentially grows, true. however, with the conservative growth expectation mentioned above, your company value will be at more than 65 millions after those four weeks without the IPO.
I am not an economist, but even though the numbers above are extremely rough estimations, I do not see a clear pro-IPO picture. If I then throw in the disadvantages into the mix, I see no reason for me to ever IPO.
There are way better and more precise calculations available on the board.