The Initial Public Offering is also called the stock launch, it is a process of offering the shares or stocks of a private company to the public for the first time. It is useful for the company to raise capital from public investors.
IPO is mainly useful for private companies to gain their investments from public companies. Private companies to hire public investors, and customers and set the price and the data so that they can offer their shares to the public companies.
It is the best policy for raising capital for the companies by letting them share their shares on the stock market. Selling the shares in the stock market mainly consists of two steps they are:
- Sharing the stocks first in the primary market.
- After listing them they get shared in the secondary market where the trading starts among the investors.
- For holding the IPO the companies should follow some rules like filing the s1 registration statement with the SEC to complete the requirements.
- After the IPO, the shares are traded freely in the stock market, termed the free float.
- IPO is usually adopted by the investors and the capitalists to make high returns for their investments in businesses.
- IPO is the best option to gain profits faster and earn over the long term.
- The best business technique everyone follows is buying something at a low price and selling them when the price rises and the same technique is followed here to gain high profits.
- IPO is a complicated process that involves several steps like:
- Deciding the reason for the existence of IPO.
- Hiring an investment bank
- Underwriting tasks
- Conducting a pre-IPO analyst research
- Cost computing
- Finalizing the IPO price and allocating shares
So, the IPO is a step-by-step process as shown above.
ADVANTAGES OF IPO:
- Increases the diversity among the people
- Cheaper solutions for increasing the capitals
- More exposure and enhanced public image
- Ability to attract more and the better employees
- To enable acquisitions
Disadvantages of IPO:
- The rise in marketing and the accounting costs
- It is necessary to disclose sensitive and the financial information
- More attention and concentration are required for the success of the IPO
- Additional funding may not be provided if the company’s performance is poor
- Initial shareholders may lose independence when new buyers gain the ability to buy them
- Company will be at risk of the allegation and lack of security.
IPO is a golden choice for private companies who are waiting to gain high profits in less period so it is useful for them. Everyone must be aware of it as it is riskier for ordinary investors as the pricing has been increasing rapidly.