IPO Complete Details & Initial Public Offering Process / Disadvantages

It is beneficial to know about IPO (Intial Public Offering) for companies. Here get detailed information about IPO, their working process including advantages and disadvantages in it…

What is IPO

Initial Public Offering is a process of offering shares of a private company to the public through new stock insurance. These public share insurance does allow a company to grow their capital by adding more public investors. Hence in these the process to transition from a private to public company will be a beneficial time for private investors.

So having an Initial Public Offering in picture, does give an option for offering of public investiture where on other side the private investors does hold their share from their existing premiums. Moreover A company without in consideration of Initial Public Offering has remained as a private company and it has got all investors form private without having primary public investors in place.


Important Points of Initial Public Offering

Before you tend to understand what Initial Public Offering mean does, you must have a go through to the below points to understand it better.

  • Initial Public Offering does points to the process of offering shares of private company to public
  • So company must have met the requirement of SEC securities and Exchange commission to hold an Initial Public Offering
  • Having Initial Public Offering does allow company to gain the capital from primary market shares
  • Moreover Initial Public Offering is an option of exit of the company’s co-founds
  • Hence it allows to have full profit from by realizing them through private investment

How IPO Works

  1. Company should be private without any primary share
    • Initially a company will be private with having relatively less profit by adding the share of their own family members and relatives. It consists of professional investors which can be venture capitalists without any primary share in place.
  2. Start advertisement to gain Public Interest
    • Once a company has gained the SEC regulation and investors are sure enough about the company going in the market to get the public investors. At this stage the advertisement to gain public interest will start.
  3. Gain a market value of One Billion
    • Eventually these processes of Initial Public Offering will be started when a company has gained a market value of one billion. Thus to reach the market competition the offering form public will be allowed.
  4. Do not try to increase money with having a increased transparency
    • Having an Initial Public Offering an company does get open space to increase money with having an increased transparency in their working culture, as their public investors always look at every aspect of the company.
  5. Get priced Through Diligence and Ex-private owners will be changed
    • Initial Public Offering will be priced through due diligence and thus the share of previously owned private owners will be changed to public and previous private shareholders will become public training price.
  6. Any institutional investor invest money into company through IPO
    • In these periods, the public market brings a lot of opportunities for the company to buy shares in the company and does contribute to its capital. Any individual investor can invest into the company through Initial Public Offering.
  7. Maintain Shareholder Equity
    • At these points, the share company sells, and buys are the generating factors of company new shareholders. The shareholders equity shows the

IPO Process

An IPO consist of two different parts which is the pre-marketing phase and the initial public offerings. When a company is interested in Initial Public Offering, it will underwriter the advertising by soliciting private bids and making it public statement to generate interest.

Thus an underwriting leads the Initial Public Offering process and there can be any several number of underwriters as part of IPO collaboratively. Here are the steps that an Initial Public Offering includes.

  1. Underwrites present the validation and proposal with discussing their services.
  2. Company choose its underwriters and formally agrees to them in an agreement
  3. Initial Public Offering teams will form through comprising underwriting and other SEC experts
  4. The pre-marketing IPO process will be taken place to understand the prospectus and privately held filling
  5. Next the marketing material to promote the Initial Public Offering of company through online or offline will be placed
  6. An typical board of directors will form for the company
  7. In next day, the company Initial Public Offering share will release in public market to gain the interest and grow the rate to apply through application and investor can check the same for IPO allotment status online.

Advantages of Initial Public Offering for Corporate Finance

Initial Public Offering does look for raising the capital of a company by giving the following below said advantages.

  • Company gets investments from public which parallelly increases its capital
  • Brings easier acquisition deals to attract public for the public listed shares
  • Hence Increase transparency which brings more favourable credit from other private company
  • An company termed as public can raise funds for secondary offerings
  • They can use ESPOs to get better management and skilled employees
  • Following better Initial Public Offering does gives lower cost of debt
  • Increase companies’ public image which increase its sales and profit

Disadvantages of IPO

There are some disadvantages by grabbing the rules of Initial Public Offering and that lead them to move for some different alternatives.

  • An Initial Public Offering is expensive, and it is usually differing from other cost of business
  • Company must disclose its earning, accounting, tax, and all other information to public
  • It should reveal secrets of business and methods of growth to investor
  • Might come across legal and counting issue if there had been any disturbance earlier
  • Management reporting does require lot of work, as it goes to public in very next step
  • New policy can’t be setup easily, as a part of share will be with the new public shareholders
  • Company might come across private securities raising an legal action against their decision
  • Hence fluctuations in company share price does distract the management which doesn’t get a prefect real financial results
  • Using excessive debt to buy stock for public interest might drag the company into instability and risk in firm
  • So Improper governance and leadership by board of directors might become difficult for good managers ready to take risk
  • An Initial Public Offering is for a company, holds great value in the market and has always tries to put their values into public with an open management risk. Exploring is always an option for growing the business. Thus opting the service method to engage the public share always helps if they are in the best way of consideration.

Is Initial Public Offering good or bad?

From a public view, Initial Public Offering is not always a good idea for investments. As it gathered a lot of buzz and any investment on these would require a lot of research. The price goes to the investors even before its initial offering price in the stock has decided to go live in the market.

Why is an Initial Public Offering important?

The Initial Public Offering comes with the objective to raise the capital of business. It does also have many numerous advantages if handled with regulation or else it would leave one with heavy debts. Companies under Initial Public Offering will come to open; such that public investors will also allows to be a part of the company by owning the said percentage of shares.

Are there disadvantages in Initial Public Offering?

Yes, as stock always switches its ways in the market. Initial Public Offering does have some disadvantages as it needs large costs and it won’t be possible for the original owner to sell their shares instantly. Board of directors must reveal their every plan in public to gain their interest and ask them to invest in compony, which also makes their competitor aware of the business rules.

Why do Companies go into Initial Public Offering?

At a certain point, companies will need to raise their income. This will lead them to come into the Initial Public Offering. These will also pay their debt, speed their processing,and increase third criteria by attracting a lot of public investors with no serious actions. The new shares may issue to the public. It will make them equally eligible for taking some of their company’s decisions.

Does Stock price changes from Initial Public Offering?

Yes, obviously if a company involves in the Initial Public Offering its stock price will get down to attract the public investors. The public offering will not satisfy the investors sentiment and does bring a negative effect on stock price. The shares will increase in number, but their price will go down eventually.

Who will decide the Initial Public Offering price?

The promoters or selling share shoulder will play a major role in deciding the price of share when it is coming to Initial Public Offering. They look from book running lead managers. Promoters decide the price which might come up to unexpected values when the company shares go on the market. Thus the price band and minimum bid of the initial offering will always be in the hands of promoters of the company.

Can investors switch back from Initial Public Offering?

Yes, stock market is an open space for everyone. The investor are always have an open hand come into bid or get out from same. The share bought must send to open or should be sell out. It might come to profit or loss condition. Investing in stocks of Initial Public Offering company must done with well-planned manner for better profit.

Leave a Comment