Advantages & Disadvantages Of IPO

In 2017, India saw the first 36 public offerings (Public IP Offers) (IPOs). As a result, companies raised a record $ 67,147 in the financial market through IPOs.

With so much money being raised this way, you may be wondering, “What exactly is an IPO?”

What is an IPO?

The first public offering (IPO) is the first time a company has issued shares to the public. This is where a private company decides to go ‘public’.

In other words, a company that was privately owned until then became a publicly traded company.

Prior to the IPO, the company had very few shareholders. This includes founders, angelic investors and affiliate capitalists. But during the IPO, the company opens its shares for sale to the public. As an investor, you can buy shares directly from the company and become a shareholder.

How are shares allocated to an IPO?

There are different categories of investors when it comes to IPOs. These include:

Eligible Investors (QIBs)

Non-Institutional Investors (NIIs)

Commercial Investors (RIIs)

Shares allocation differs from all the above groups in the IPO. As an individual investor, you fall under the last category.

As an individual investor, you are allowed to invest in small ventures worth Rs 10,000-15,000. You can apply for up to Rs 2 lakh on an IPO. The total demand for shares in the sales category was determined by the number of applications received. If the requirement is less than or equal to the number of shares in the sale category, you are given a full share of the shares.

When demand is greater than distributed, it is known as over-subscription. In most cases an IPO can be registered more than five times more. This means that the demand for shares exceeds that given five times!

In such cases, shares in the sale category are given to investors on a lottery basis. This is a computerized system that ensures the equitable distribution of shares to investors.

Why is the Company so outspoken?

Increasing revenue growth and expansion

Every company needs money to increase its performance, create new products or pay off existing debts. Going public is a great way to get the most out of your company.

Allowing early owners and investors to sell their stock to make money

It is also seen as an exit strategy for early investors and capitalist capitalists. The company becomes liquid through the sale of shares in the IPO. Venture capitalists are selling their stock in the company at this time in order to make a profit and get out of the company.

Great public awareness

IPOs are ‘starred’ in the stock market calendar. There is a lot of buzz and appreciation around these events. This is a great way for a company to introduce its products and services to a new set of customers in the market.

How is an IPO issued?

During the initial public offering (IPO), the company issues its shares to the public shareholders for the first time. In a previous article, we learned why a private company decides to launch an IPO and how investors can benefit from investing in it.

The next questions that come to mind are: “How is an IPO issued?”

What is the IPO process?

A private company must take various steps to reach out to the public. Of course:

Choosing an investment bank

The first step is to choose an investment bank as a sub-registrar. Here, the role of the investment bank to help the company establish various details such as

How much does a company hope to raise?

The type of security to be provided

The starting price per share

In a large IPO, there may be many investment banks involved. In short, investment banks act as facilitators in the IPO process.

It creates the Red Herring prospectus

The next step in the IPO process is to create a ‘Red Hering Prospectus’. This is done with the help of subscribers. The prospectus lists various components such as financial records, the company’s future plans, market risks and a list of expected stock prices. Most of the time, subscribers are under road shows with the aim of attracting institutional investors after creating the red herring prospectus.

SEBI Authorization

This opportunity is given to the Securities and Exchange Board of India (SEBI). If SEBI is satisfied, it greenly illuminates the initial public offering (IPO) process. In addition, it also provides the date and time of the IPO. However, in the event that SEBI is dissatisfied, it requests that changes be made before the prospectus is allocated to public investors.

Stock approval

Listing is a process in which security is allowed to deal with known stock transactions. But for that to happen, the company needs to be approved in exchange. For example, the Bombay Stock Exchange (BSE) has a listing department that aims to provide corporate accreditation. The BSE has a list of procedures that must be followed for a company to be included in its list.

For example:

The minimum release size should be Rs 10 crore.

The minimum market capitalization of a company should be Rs 25 crore.

The minimum amount issued by the company’s paid post should be Rs 10 crore.

Only if the company complies with these conditions, does it obtain approval from the BSE.

Stock registration

Once all transactions have been processed, the company makes the shares available to investors. This is done on the dates specified in the prospectus. Investors wishing to apply for shares must complete and submit an IPO application form.

Listing

Shares are allocated to different investors according to the need and price quoted on their IPO application forms. Once this is done, investors find that the shares are deposited into their demat accounts. In the event of further registration (if the demand for shares is higher than the number of shares floating by the company), investors may not get the amount of shares they originally wanted.

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