Initial public
offer
Initial public offering (IPO) or stock market launch is
a type of public offering where shares of stock in a company are
sold to the general public, on a securities exchange, for the first
time. Through this process, a private company transforms into a public company. Initial public
offerings are used by companies to raise expansion capital, to possibly
monetize the investments of early
private investors, and to become publicly traded enterprises. A company selling
shares is never required to repay the capital to its public investors. After
the IPO, when shares trade freely in the open market, money passes between
public investors. Although an IPO offers many advantages, there are also
significant disadvantages, chief among these the costs associated with the
process and the requirement to disclose certain information that could prove
helpful to competitors, or create difficulties with vendors.
Details of the proposed offering are disclosed to potential purchasers
in the form of a lengthy document known as a prospectus. Most companies
undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters
provide several services, including help with correctly assessing the value of
shares (share price), and establishing a public market for shares (initial
sale). Alternative methods such as the Dutch auction have also been explored. In terms of size and public participation, the
most notable example of this method is the Google IPO. China has recently emerged as a major
IPO market, with several of the largest IPOs taking place in that country.
Steps in IPO
·
Appointment of various intermediaries like underwriters, bankers to the
issue, registers, brokers.
·
Filing of prospectus with the registrar of companies (ROC).
·
Printing & dispatch of application forms to merchant bankers,
underwriters, brokers to the issue.
·
Filing of initial listing application to stock exchange where company
wants to get its shares listed.
·
Statutory announcement with abridged prospectus in major English dailies
and vernacular newspaper along with issue open and close date.
·
Processing applications received from investors.
·
Establishing liability of underwrites in case of under subscription.
·
Allotment of shares to applicants as per prescribed procedure of SEBI.
·
Listing of the issue on stock exchange.