What is IPO ?

Initial Public Offer (IPO)

An IPO is the very first sale of shares to the Public, before IPO, the company shares will
be held mainly by the promoters, Investors or founders, family members or friends. If the public wants to Invest in a stock then they can only Invest once the IPO is issued.

We can also approach the owners of the company with an offer to Invest in the company but the owners are not bound to let you Invest in their company. These opportunities are often given to the strategic Investors, fund houses and venture investors considering their capability to invest a huge amount of money.

With the recent changes in SEBI regulations, promoters of the listed companies can hold a maximum of 75% of the company shares and the minimum of 25% should be available for the public.

Public companies have thousands of shareholders and are liable for strict rules and regulations. As small Investors money are Invested, SEBI takes appropriate measures to safeguard small investors money.

If a company is held by the promoters, then it is not liable to disclose the financials of the company to the public but once it is listed after IPO then the same needs to disclosed publically. The company also have to give details of their Investments and the profit and loss statement. 

Why have an IPO?

IPO raises a huge amount of funds for the company to Invest in different projects and to work on the expansion. A privately owned company has many ways to raise the funds, like borrowing from the bank, approach an Investor etc. But if you will look at the data, IPO is the option where a company can raise a significant amount of money.

A public company enjoys certain benefits like getting loans at a cheaper rate. As part of the acquisition, it also allows a company to issue shares as part of the deal in place of cash.

If you are holding shares of a privately owned company then it is difficult to sell shares of the company or even to find the exact price of a share is not an easy task. But in case of a publically held company, shares are traded in the open market and an Investor can sell or purchase shares in the market at the market price, ease of liquidating your investments are one of the major advantages of investing in a publically owned company.

There are some benefits and loss of IPO for any company.

Benefits - 

1. The company gets capital at lower rates.
2. A large and diverse group of investors Invest in the company the shares.
3. Increases company' exposure, prestige, and public image, which can help the company’s sales and profits.
4. Public companies retain better management and skilled employees through liquid equity participation (e.g. ESOPs).
5. Acquisitions can happen in place of the stocks as payment term.
6. IPO raises the largest amount of money for the company compared to any other options and with better performance, these companies become one of the hotspots for the Investments.

Cons - 

1. The company have to disclose financial, accounting, tax, and other business information
2. Marketing, legal and accounting costs increases.
3. The risk that required funding will not be raised if the market does not accept the IPO price, sending the stock price lower right after the offering
4. With company information out in the public, it is useful to competitors, suppliers, and customers. Some of the companies restrict their plans to go public because they do not want to release company Information in public.
5. As the company goes public, the company may face the loss of control problems due to new shareholders, who obtain voting rights and can effectively control company decisions via the board of directors
6. Risk of legal or regulatory issues increases, such as private securities class action lawsuits and shareholder actions.

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