INITIAL PUBLIC OFFERING (IPO)

IPO stands for Initial Public Offering. Put simply, it is the process by which a company goes public.

It refers to the process by which a privately held company, or a government-owned enterprise like LIC, raises funds by offering shares to the public or to new investors.The IPO is the first step in the process of listing a company on the stock exchange.

In India, a company listing an IPO first has to file its offer document with the market regulator, Securities and Exchange Board of India (Sebi). The offer document contains all relevant information about the company, its promoters, its projects, financial details, the object of raising the money, terms of the issue, etc

3. Significance of IPO

A company often chooses to list on the stock exchange mainly to secure funding. Additionally, it helps expand and diversify its group of shareholders. Being listed requires the company to follow stricter disclosure norms and regulatory compliance, which ultimately protects the interests of shareholders. Moreover, it offers a convenient exit route for current investors

An Initial Public Offering (IPO) marks a major milestone for any company. It represents the transition from a privately held entity to a publicly traded one and brings several key benefits and strategic advantages:

• The most important reason for launching an IPO is to raise funds. The money raised can be used for business expansion, product development, debt repayment, infrastructure upgrades, or other strategic initiatives
• Going public significantly increases a company's brand recognition and trust among investors, customers, and partners. It demonstrates a level of transparency and financial strength that boosts the company’s reputation
• An IPO enables a company to broaden its shareholder base, reducing the ownership concentration among founders and early investors. This can bring in a wide range of institutional and retail investors
• Listing on the stock exchange provides a market for buying and selling shares, allowing early investors, promoters, and employees holding equity to exit or liquidate their holdings over time.
• Public companies are required to follow stricter regulatory norms and disclose financial and operational information regularly. This promotes better transparency, governance, and accountability—beneficial for both investors and the company
• With public listing, companies can offer Employee Stock Ownership Plans (ESOPs), making it easier to attract and retain talent by offering equity-based incentives that can be traded on the stock exchange

4. Eligibility

In India, the Securities and Exchange Board of India (SEBI) has set specific eligibility norms that companies must fulfill before they can raise funds from the public:

• The company should possess net tangible assets worth at least ₹3 crore and a net worth of ₹1 crore or more in each of the last three complete financial years.

• Additionally, it must have recorded an average pre-tax profit of ₹15 crore or more in at least three out of the five most recent financial years

Source: Indianexpress