IPO is one of the activities that help companies increase their reputation and capital very quickly. However, not everyone knows about IPO well.
So what is an IPO? The following article will summarize all important knowledge to know about IPO. Invite you to follow!
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What is an IPO?
What is an IPO? IPO (or Initial Public Offering), the original meaning of “Initial Public Offering”. This term is used to refer to a company that broadly mobilizes capital from the public for the first time through its initial public offering and listing on the stock exchange. In which, the public is understood as a group of investors with a sufficiently large value of securities offered for sale. After the initial public offering, a joint stock company will officially become a public company or a public joint stock company.
What is the purpose of an IPO
The need to increase capital for the company is always a priority, because so the company can expand its scope of operations and develop, helping to accelerate revenue more efficiently. Issuing and listing shares on the stock market is the best way to increase capital and create a lot of financial opportunities. This form of equitization also helps employees in the company to own a certain amount of shares from the company.
The following are the purposes of making IPOs an extremely effective business tool for the company:
- Affirming the resources and position of the business to the public, contributing to increasing brand value and reputation.
- Help mobilize a large amount of capital from many investors in the community to expand the scale of operations.
- An IPO carries more value than an issue of corporate bonds.
- Equitization activities contribute to attracting potential human resources, building a contingent of capable staff.
- IPO process is seen as a stepping stone for the processes of mergers and acquisitions of potential small businesses.
What are the conditions for companies to do an IPO
The conditions for implementing an IPO seem to be quite high through the following specific standards:
- The company must have a charter capital in the accounting books at the time of registration of IPO procedures with a specific amount
- Business operations in the most recent year up to the time of registration of share issuance must be profitable.
- There must be specific plans and plans for the implementation of the IPO, the use of the capital raised after the IPO, which is approved by the Board of Directors and committed to the responsibility.
- Enterprises with 100% State capital must convert the type of company into a joint stock company.
- Infrastructure enterprises must have at least 1 investment project to build infrastructure under the socio-economic development project of a ministry or branch, and have a project organized by competent authorities. Finance, securities underwriting.
- Foreign-invested enterprises must register to convert into joint stock companies, set up IPO registration documents through consultation of a securities company.
IPO offering methods
Based on the securities law, the initial public offering (IPO) is allowed through the following methods:
- Mass media, including radio, radio, Internet …
- Dutch auction (descending auction): A form of auction when an item is offered for a very high price, even much higher than its actual value.
- After that, the price will slowly drop until one of the bidders accepts the current price.
- Guarantee commitment
- Service with the highest responsibility
- Buying and reselling
The legal procedures to participate in an IPO are complicated with strict and complicated sanctions, so each IPO often requires different companies to support. Specifically, in the United States, law firms / securities / auditing firms will provide assistance.
What are the risks when implementing IPO
- The maximum transparency of information makes it difficult for the company to control all information released to the public and the consequences of information value.
- The pressure to maintain the company’s growth will increase due to investment from the market and shareholders.
- Incurred expenses increased, including issuing fees, intermediaries, accounting, consulting, investment banking …
- Sharing and losing control of the company’s operations must be through voting from shareholders.
- The Board of Directors and the company executives must bear many responsibilities for laws, regulations, public reporting …
In general, IPO is seen as a complicated financial process with many benefits. The value that an IPO brings is not only within the enterprise but also to investors in the market. IPO is the first step in the process of publicizing the value of financial activities.
The above article has provided all important knowledge to know about IPO. Fastloans.PH hopes the article has helped you gain more useful knowledge. Good luck!
See also: What is EBITDA? Simple EBITDA Formula