Initial public offering or IPO Share is the first share, which a company offers to the public to generate funds for the company. These shares are traded in the stock exchange. one vital factor about the IPOs is that the initial public offerings do not consist of the 100% of the company shares.
The maximum percentage of the shares remain with the owners which provide them the status of the owner and only some limited number of shares are offered as IPOs. The IPOs are generally offered with a particular purpose and that is to collect some good amount of money, which can be used to raise the capital of the respective company.
The process of IPO share offering is a bit complicated and needs to maintain certain legal procedures and financial rules. The first step of IPO offering is to get underwriters.
The banks perform this role. The underwriters are very important because only after the process of underwriting is completed, the company’s financial status can be determined and after this the price and value of the shares can be fixed. Once the underwriting process is done and the value and price of the shares are fixed, the particular company and the underwriter becomes a part of an agreement, which enables the underwriter to sell the shares on behalf of the company.
The Underwriters also provide assistance to the company regarding the financial and legal regulations. For all these services, the company pays a certain amount to the bank as their commission. The multinational companies also involves some law firms with the process because these companies generally do the business in different countries and all these countries have different legal structures and process.
The IPOs are generally offered at very low prices. This is done because the low rates of share may encourage the investors to buy more shares. It is totally a business strategy which aims at raising money as much as possible. Once the IPOs are in the market and the same are listed in the securities market, the company is bound to place the annual business report in front of the financial securities board.
Last Updated on : 26th June 2013