IPO or Initial Public Offering is made when a company wishes to list its shares in the general public’s stock market. Listing an IPO makes a company go from a private to a public company. Besides this, the main idea of filing for an IPO is to raise capital from general investors to gain additional liquidity through shares.
In India, the share market is under the regulation of Securities and Exchange Board of India (SEBI), which has prescribed specific guidelines which you need to adhere to while filing for an IPO.
- Hire the services of a professional
A company needs an underwriter or investment banker who will go through the company’s financial statements and parameters and ascertain the deal details, such as the allotment value. They will –
- serve as the link between investors and the company
- explain all the procedures to the company
- sign an agreement mentioning all the details of the securities/shares
- Registering for an IPO
This is one of the crucial steps to apply for an IPO. The professional helps in the preparation of the registration statement and a draft prospectus, also known as red herring prospectus (RHP). This is done in adherence to all the guidelines prescribed by SEBI. Some important elements of this RHP include the definitions of industry specific key terms, possibilities that could impact the company’s financial performance, how the money generated through the IPO will be used, the forecast of the industry in which the company operates, and so on.
- Validation from SEBI
All the IPOs are accepted after SEBI’s seal of approval. After the company submits all the necessary documents with RHP and application form to SEBI, it will verify the same, checking that all the information provided is accurate and fair and then validate the same for further process.
- Application to BSE/NSE
After SEBI’s seal of approval, the company can file an application form with the stock exchanges such as BSE and NSE on which the company’s shares will get listed.
- Promotional strategy
After the approvals from SEBI and the stock exchange, the underwriters and investment bankers will promote the IPO with different marketing tactics to advertise stocks to buy, attracting potential investors.
- Pricing the share – After promoting the IPO in the market, the company will issue the price of shares. Under fixed price issue, the price at which shares will be allotted and sold are declared in advance. Under book building issue, the company sets an IPO price band, inviting bids for the shares. The final share price is decided after the bidding is closed.
- Allotting the share – Once the price is fixed, the company and the underwriter will determine the basis of allotment of the shares to each investor after getting all the bids.
Thus, filing for IPO is a time-consuming process for the company, with several checks in place to protect investors’ money. Now that you know the IPO process and how allotments are made, you can make informed decisions when it comes to investing in such IPOs or searching for stocks to invest in. Make prudent investment decisions regarding the stock market with the help of an expert. Reach out to one today.