Memo to Senior Management

Public vs. Private

Dear Senior Management,

For the past six months, we have been researching advantages and disadvantages of taking our sixty year-old company public. In this memo, I will discuss why there are more advantages than disadvantages to going public. As you know, our company began by selling simple pink pencil erasers, and in 1995, we began our very successful celebrity line. We now want to expand our business by building a plant, but do not have the money to do this. We can either take our company public and raise money in the stock market, or stay private and look for an investor or bank loan. When we did our research we looked at our revenues, where we sell our product, how much each of our regions makes in a year, our management strength, how many employees we have, and our expenses. Our study concluded that going public is the best decision for our company, because we will have better access to capital to grow our business.

There are many advantages to taking our company public. The biggest advantage is that it is easier to raise capital in the stock market. It is also cheaper than a bank loan and there are no restrictions like there may be if we borrow from a private investor. With the additional funds from a stock offering, we will be able to expand our business in international and domestic markets. As a public company, we will have better access to capital to grow the business, and will be able to issue additional stock to raise more money, if needed, in the future. Private companies cannot grow as easily since bank loans or private investors may not want to give them more money until they see if the business is successful. We can do a lot to grow our business with funds from our stock sale.

If we expand to China for manufacturing our erasers, we will save a lot of money in labor costs since employees’ salaries there are a lot lower. As we grow the business, we will be making more erasers, and we will have the opportunity to buy raw materials at a lower cost because we will buy larger quantities. We could also expand the product line by producing erasers of sports figures. Another benefit of going public is that we will have less liability as owners. With a public company, stockholders can only lose as much money as they invest. If we stay as a private company, the owners can lose all the money they invested. Also, we will not be affected by a death or retirement of management, because we can elect a new CEO. Private companies can be impacted by a death of senior management. In summary, there are many advantages of taking our company public.

We see a couple of disadvantages to going public but do not believe they should stop us. As a public company, it can be harder to make decisions because we will have to answer to shareholders, research analysts, and the media. Private companies can make quicker decisions and without such a huge process. Public companies need to add departments for the investor relations, for reporting to the Securities and Exchange Commission, to produce an annual report, and other financial reports. It will cost more to travel around the country to see investors to go public, and to update stockholders on the business. Private companies do not have these expenses. These are a couple of the disadvantages to going public.

In conclusion, we believe that there are many more advantages than disadvantages in taking our company public rather than staying private. Therefore, going public is the best decision for our company.

Sincerely,

Managing Partner & Founder’s Son