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Procedure |
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There are many procedures for listing Initial Public Offering (IPO) and normally involve one or more investment banks as ‘underwriters’. The issuer is the company offering its shares, who enters into a contract with a lead underwriter to sell its shares to the public. This is followed by the underwriter approaching investors with offers to sell these shares. In order to apply for IPOs you need to have a demat account or else your application will be rejected. IPOs are generally expansively advertised through newspapers, television commercials and on radio as well.
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This is because not only is it statutorily required but also companies want utmost publicity to make sure that their issues are known to the largest section of people to gain success. The procedure and planning that goes into preparing a company to go public takes several months.
It is an extensive procedure which involves assembling a board of directors, auditing accounts for accuracy, hiring consultants and advisers, and contracting a financial printer. The procedure for IPOs cannot happen without having these professionals take center stage. The most important person in the entire IPO process is probably the underwriter who is an investment banker. They have the right distribution channels and business community contacts through which they are able to get a company's shares to the right investors. Underwriters are also involved in helping set the initial offering price for the stocks and creating interest for the stock. They further assist in creating the brochure with important details of the company so as to allure potential investors.
After the prospectus or brochure has been drafted, it is assessed by the Securities and Exchange Commission (SEC). Upon approval by the SEC an extensive promotion campaign is arranged in major cities to attract potential investors. A big IPO is generally underwritten by an association of investment banks with one lead underwriter. On the basis of the percentage of the value of the shares sold the underwriters gets a commission. The lead underwriters, who sell the largest proportions of the IPO, get the highest commissions sometime up to 8%. Typically, the lead underwriter in the primary selling group is also the lead bank among the other selling groups.
Due to the large number of legalities involved IPOs usually hire one or more law firms with major practices in securities law. The procedure includes issuing new shares for raising new capital, and secondary sale of existing shares. Initial Public offerings are mainly sold to institutional investors, although some shares are also sold to the retail investors of the underwriter. In the process of selling shares of IPOs a broker is paid through a sales credit and not a commission.
To know more information about IPO Planning, visit www.ipoplanninghub.com
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