IPO, is the term used, when a firm comes to the market with its shares for the first time, to raise fund from the public. IPO, just three alphabets or initial public offering, three words, looks small but it is equally a tedious and fun process too.
Why does a company bring in IPO? Everyone in this universe wish to taste success and to taste success one has to widen its horizon. A company to broaden its horizon need to expand itself beyond its existing capacity, and to improve the capacity, one needs capital, and equity markets is one of the favourite option for the firm to raise capital , for expansions. It not only gives capital, but also put company into lime light, and makes it known on PAN India basis.
IPO does have many advantages, but it’s definitely a tedious job. Many qualified individuals are taken on board for successful launch of an IPO. Merchant bankers, Lawyers, Chartered accountants, Company secretariat, Exchange.
Let’s now, know the requirements for the IPO registration. A company can’t simply issue the shares in public and raise fund. It goes through a proper process. As with IPO, comes great responsibility for the company, because many numbers of share holders are involved in a company, with much expectation with the firm. The first and foremost thing to decide before launching an IPO is the price band of the IPO. To accurately price the IPO, company hires an investment banker, who underwrites the process of IPO. Underwriting is the general process of preparing for and raising money via either debt or equity.
Investment writers involve in the process, will discuss and decide the type of security to be issued, price band within which the IPO will be launch. Underwrite also undertake the pain of getting the issue subscribed.
Types of commitments, which generally bankers undertake.
- Firm commitment: the underwriter guarantees that a certain amount of money will be raised by buying the entire offer itself and then reselling shares to the public.
- Best Efforts Agreement: in which the underwriter sells securities for the company but does not guarantee the amount raised.
When all side agrees with all terms and condition and prices ranges and type of securities are decided, the lead bankers files the paper with the regulatory authority, i.e, SEBI (in India).Documents has all the information like, information about the company, management back ground, any prior legal hassle, where will the raised fund be used and insider holdings. It has has the ticker symbol, which the stock will trade over exchange, once it gets registered. Exchange then require cooling off period, during which exchange checks and take a deep insight of the information provided by the company, it also make sure that all material information has been disclosed by the firm in the light. Once SEBI approves the offering, a date is fixed for IPO listing.
Criteria: Below are the criteria which are supposed to be met by the firm to get itself register over exchange, as give on NSE.
- PAID UP capital is the first and foremost important criteria to be met, the paid up equity capital of the applicant shall not be less than 10 crores and the capitalisation of the applicant’s equity shall not be less than
- Firm should have adhered to all conditions precedent to listing as emerging from inter-alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes. A firm need to have three years of track record.
After these few criteria are met, applicants must satisfy the exchange on the following terms, as stated in NSE.
- No disciplinary action by other stock exchanges and regulatory authorities in past three years.
- Redressal Mechanism of Investor grievance.
- Distribution of shareholding
- Details of Litigation
- Track Record of Director(s) of the Company
This is how IPO takes birth in the primary market of the financial world, before growing up to become a traded share into the secondary market.
To take further Advice From SEBI Registered, visit: http://www.advisorymandi.com/1