What is an Initial Public Offering
IPO stands for Initial Public Offering. It refers to the process of a company going public. This means that they offer investors the chance to own a portion of the company, through their shares. This transition period from a private company to a public company can be a very important time for private investors, as they usually get a premium. An IPO also allows the company’s initial investors and founders to hop off the train, as they can sell their shares are realize profits.
Process Of An Initial Public Offering
Before an IPO, companies are usually relatively unknown, or small companies. They might have the sole shareholders as the founding members and family members. However, this is not always the case. Established companies may choose to release an IPO late. Some examples of this are Zomato and Burger King India.
An IPO is a huge step for a company, as they have access to raising big amounts of capital from investors. This can skyrocket their growth, and allow them to expand their operations. The IPO process ensures that the company is transparent with its financials. This is good since more investors believe in the company and are inclined to invest in them.
The number of shares the company sells, and the price they sell them at factors that contribute to the new shareholder’s equity.
The IPO process has two main parts. The first part is advertising that it is going public, and the second is the IPO itself. Companies can solicit private bids, or post a public announcement that they are issuing an IPO.
Steps Involved In The Initial Public Offering Process
- Proposals: Various underwriting groups propose their services to the company that wants to go public. Then, the company reviews the strengths of the underwriting groups and finalizes who they want to work with.
- Formation: An IPO team consists of lawyers, underwriters, Securities and Exchange Commission experts (SEC), and certified public accountants (CPA)
- Documentation: All the documents required for the IPO are compiled and presented to the stock exchange.
- Marketing: The company prepares marketing materials to advertise going public. This is the last chance for underwriters to change the price range of the IPO. Based on the response from the marketing, the company can decide whether to increase or decrease the number of shares to be issued.
- Financials: A board of directors is established so that they can make the company‘s financial statements available to the public. This is so that the company publishes their quarterly earnings statement on time.
- Shares Issued: The company issues their share to the public on the specified date. They make sure the process is completed smoothly, and can also decide to increase the number of shares, depending on how fast the shares are booked out.
