11 What and why’s of IPO | What is an Initial public offering?

The start of a new journey begins with its first step, this applies to everything in the universe, maybe it’s any resolution, and relationship, or business because the start matters the most and as they say well begun is half done.

For any business or entrepreneurship, their journey starts with their business entering into public ownership sector, which starts with launching their IPOs in the respective market means if the company is from the US they will prefer to be listed on the NYSE first, through the IPO, and likewise, for the Indian companies, they will prefer to be listed on BSE or NSE through their IPOs.

The company that will be listed on the stock exchange will help the IPO, so this tells that IPO makes the most crucial factor in any company’s growth. So let us understand what is IPO and why it is such an important factor for any company.

What is IPO?

 An IPO is called an initial public offering, which means the company offers the ownership of the company to the people or organizations other than the board of directors, who were the key people of the company until now. Now the company will have many investors like retail investors, regional as well as foreign institutional investors, high net worth individuals, and in some cases governmental organizations too.

What is public ownership of the company?

The public ownership of the company means After the company is listed on any stock exchange using the IPO, now the company has to take into consideration, the views of all the investors in the company means in a way the public is the partial owners of the company for all the major decisions.

Is public ownership risky for the company?

In most cases, public ownership is not risky for the company, because the company will get many other key people to the company, and as all of them have invested their money in the company. All of them are willing to help in the growth of the company.

Why do companies issue IPOs?

The companies issue the IPO for various reasons, some issue the IPO for the future expansion of the company operations and some do it for recovering from their previous year’s loss-making which is called debts for the company.

What’s the process of IPO listing?

The company who wants to issue the IPO needs to consult and take the help of all the experienced institutions for issuing an IPO these experience institutions are called merchant banks, for help to the company the merchant banks can charge fees along with some shares allotments too, but this situation varies from company to company. Along with merchant banks, there are some other persons involved like an underwriter, register of the company who all help the company for completing and issuing all the IPO-related documents and the processes.

What is a draft red herring prospectus?

Red herring prospectus is the first draft document issued by the company to the state share market regulatory authority. This document tells all the crucial information, like past-present-future of everyone associated with the company along with all the reasons for which company is issuing the ipo, companies future plans, companies all the previous profit and loss statements.

Do all companies who issue IPO gets listed on the stock exchange?

The company, whose IPO is fully subscribed is mostly listed on the receptive stock exchanges but if the companies are under-subscribed means less than 100% of their total shares allotted to the particular group of people. Then the company cannot be listed on that stock exchange and they can again complete the process for IPO issues after some months of break.

What does a company do if it’s not listed on the stock exchange in the first attempt? 

The company can work on its fundamentals and profitability for some periods because these are the main reasons for any investors to invest in a particular company once the company is able to work on the above-mentioned fronts then they can again issue the IPO.

Can a company once listed on the share market issue IPO again?

Yes, the company can issue new shares from time to time, but the secondary shares issued in the stock exchange are not called as IPO but they are called FPO means, follow up offer means the shares which were issued by the company in continuation to the already issued shares.

What are the IPO and FPO?

The IPO are the company shares that are listed for the first time by the company on a particular stock exchange and the shares issued by the company in the consecutive years after the IPO issuing are called FPO shares. Both are legitimate shares of the company with the same market value of the company.

Can companies’ shares get delisted from the share market?

Yes, if the companies are bankrupt or involved in some malicious activities like scams, then can be banned for some time from the share market, with the warning or in some cases they can be instantly delisted as well from the regulatory authority of the state.

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