What is an IPO?
What is an IPO? It is an initial public offering of a companies shares to the public in order to raise capital for the operations and expansion of the said company.
Who will want to go for an IPO?
Companies that want to raise capital of $1 billion IPO will have to perform much work in preparation for the offer. They cannot simply offer shares to the public. They can raise capital through a private placement if there is an investor who is willing to provide the money; however, to get a large sum an IPO is required.
A company will have to satisfy many regulatory requirements before going ahead with an IPO.
Listing on the Stock Exchange
When a company commences the IPO process, they will have to decide which exchange they will list the shares on. This is so that the shares can be freely traded by the shareholders on the open market.
In most cases the company will list on the stock exchange in the country they operate in and in some cases they will list on foreign markets so as to drive the share price higher. This will be decided based on the amount of shares issued and the market conditions. Listing on an exchange other than the country of operation requires more preparation and is a longer process.
The selection of the stock market will be based on what the company wants to achieve and how the market is performing. Many companies would wish to list on the US markets or the major Asian markets as they often perform well and are stable.
The Benefits of an IPO
A company that has been in business for a number of years can benefit immensely from issuing their shares to the public through an IPO. They can get the much-needed cash to expand their operations or start a major project. The liability of the director board in such cases are often limited to the assets of the company even though it rarely happens that a listed company would go bankrupt.
To be a listed and publicly traded company gives the business a good standing and shows the general public that people trust them. This will also, increase the amount of customers they have and people will know them to be credible as far as their products and services are concerned.