Full Form of IPO :
Initial Public Offering
IPO Full Form is Initial Public Offering. This term refers to the first stock sold by a company to the public. Most often, companies that offer IPO would be small, young, or new companies. At times, though a company has been for many years, it might be going public and hence performs the IPO. IPOs are often risky to invest, but can also offer potential gains.
Often, this is the way small companies or beginners gain the required market capital. When a company decides to go public, the first step it takes is to hire an investment bank. The first IPO occurred in 1602 March. This was when Dutch East India Company gave away shares to the public to raise capital. All shareholders were given proper receipts for their purchases and all trades of the company were tradable.
IPO Full Form – Additional Information
Initial Public Offering is a category of public offering wherein the shares of a company are usually sold to the institutional investors. It is also referred to as Stock Market Launch. In this process, shares sold to institutional investors are then sold to the public in the form of a securities exchange. By virtue of this process, a privately owned company undergoes transformation into a public company.
IPO are generally used by those companies, which wish to raise capital for the purposes of monetizing investments of private investors. With this, such companies transform into public companies. After IPO has been successfully conducted, shares are traded freely in the open market and money flows among several public investors. IPO offers several advantages but it comes with a few disadvantages such as costs incurred for conducting IPO guide competitors because certain essential information is often disclosed in this process. Due to its nature, IPO is also commonly known as going public.
In a typical IPO, the company has to disclose certain information to potential purchasers of shares and such information is disclosed in the form of prospectus, which is a very lengthy document laying down essential information pertinent to the whole process of IPO. Many companies, which decide to conduct an IPO, seek assistance from any investment banking firm, which acts as an underwriter. While acting as an underwriter, the firm makes provision of many services, which include assessment of the value of shares (which is known as share price), the establishment of a public market for the purposes of initial share, etc.
There are other methods which have been attempted upon such as a dutch auction. One best example is known as Google IPO. Recent reports indicate that China is a leader as far as IPO market is concerned. There are many aspects involved in the process of IPO and some of them have been enumerated below for better elucidation. So, here are five points that everyone must know about IPO:
History behind IPO
One of the earliest evidence of IPO can be found in the Roman Republic. During that period, the legal bodies, known as a publican, functioned independently of their members in which ownership is categorized into different parties or shares. There were records found that shares were put to sale by public investors and there was a trade in the open market. In this, the trade would happen nearby the Temple of Castor and Pollux.
There were fluctuations noted in the prices of shares, which encouraged the activity of quaestors (spectators). In the year 1602, first modern IPO was conducted. It happened when offering of shares by the Dutch East India Company to the general public for the purposes of raising capital. In the year 1783, the first IPO was conducted in the United States of America. The bank of North America conducted it.
Advantages of IPO
Despite having a few disadvantages, there are many advantages to the process of IPO. The companies engage in IPO for raising capital. The process enables the company to invite a large number of investors to contribute capital for various purposes such as repayment of debt, working capital, or future growth. When a company puts to sell common shares, it is not required to pay back to the public investors. These investors take up risks upon themselves and must be open to the chances of fluctuation in the open market. IPO, therefore, facilitates easy flow of money among public investors.
An IPO provides many benefits to the company:
- It enlarges and diversifies equity base
- It enables cheap access to capital
- It increases prestige, public image, or exposure
- It attracts and retains adequate management through the process of liquid equity participation
- It facilitates acquisitions
- It creates several financing equity, opportunities, convertible debt, etc.
Disadvantages of IPO
The following are certain disadvantages appended to the process of IPO:
- It requires disclosure of business and financial information
- It incurs considerable costs including marketing and accounting costs.
- There is a running risk that the desired funding will not be obtained.
- There is a need to publicly disseminate information that is often used by customers, competitors, and suppliers.
- There is a prevalent risk of litigation, which includes shareholder derivative actions and private securities.
The procedures relating to IPO are governed by various laws in various countries. In the United States of America, the United States Securities and Exchange Commission constituted vide the Securities Act of 1933 govern IPOs. The UK Listing Authority of the United Kingdom conducts review and approval of prospectuses and monitors the listing framework. Some of the procedures that are incorporated in the process of IPO are mentioned below:
- Advance Planning: In the organization of IPO, advance planning is very crucial. It is important to develop an able management team; audit financial statements; establish a good corporate governance system; clean up issues relating to the company, and develop policies that appeal the public.
- Retention of underwriters: Companies seek assistance from investment banks, which perform various functions as underwriters. It is the job of an underwriter to approach investors with offers for sale of shares.
- Allocation of pricing: The sale of shares typically involves any of the following methods, namely Form commitment contract, Bought deal, Best Efforts contract, and All-or-none contract.
- Stage profiting: This is also known as flipping. This refers to the circumstances before and after IPO. In this, there is a party called stag, which is a subscriber to the new issue of shares and expects a rise in the price of the stock. Therefore, stag profit is the economic gain that the party accumulates from the rise in value.
IPOs across the world
Some of the biggest IPOs in the world are conducted by American International Insurance, Visa Inc, General Motors, The Alibaba Group, Enel, NTT DoCoMo, Industrial and Commercial Bank of China, Agricultural Group of China, Enel, and Facebook. Presently, China is home to some of the largest IPOs in the world.
|EDUCATION TERMS||EDUCATION TERMS|