Difference between IPO & FPO
It is understood that to run a business, big or small, you need funds. In case of companies and larger firms, the funds may be required for cash flow needs or to maintain and expand their operations. Companies may either take the debt route or go the equity way to raise fresh capital. To raise funds through equity, companies sell their shares. A few key market-related concepts for budding investors come into the picture here. A company can choose to raise capital via an IPO or an FPO. In this article, we tell you more about what IPOs and FPOs are and the key differences between the two ways of raising money through the equity market.
IPO and FPO: Overview
A company can raise fresh capital by issue of shares. While there are several ways in which the shares of a company can be issued, here we will discuss the two types of public issues. In a public issue or offer, shares of a company are sold in the primary market in order to get newer investors and thus generate funds. The shares in such an issue are made available to the general public, who can subscribe to the same. There are two much-popular types of public issue of shares- initial public offering (IPO) and follow-on public offer (FPO). Let us try and understand what an IPO and an FPO is.
A trending topic amid investors and traders, IPO is a type of public issue of shares of a company. As the term suggests, an initial public offer is the first time that a privately owned company's shares are sold to the general public to raise fresh capital. By filing for an IPO, a company goes public and takes a step towards getting listed on the exchanges. Thereafter, its shares are available for trading on the exchanges. An IPO thus involves a change in the ownership (from private to public) of a company.
Then we have a follow-on public offer or FPO, which is not as popular a term as an IPO. An FPO involves the second or subsequent sale of shares of an already listed or public company. It is thus an additional issue of shares to raise funds.
Differences between IPO and FPO
While an IPO is the first or initial sale of shares of a company to the general public, an FPO is an additional share sale offer. In an IPO, the company or the issuer whose shares get listed is a private company. After the IPO, the issuer joins the likes of other publicly traded companies. But in an FPO, the shares for sale belong to a company that has already been listed on the exchanges in the past.
In an IPO, we have a price bank or a fixed price for the share sale, as decided during the filing process by the merchant banker and the company. However, in case of an FPO, the price of a shares are driven or determined by the market as well as the number of shares being increased or decreased (depending on whether it is a dilutive or non-dilutive FPO).
Many would say that an FPO is relatively less risky than an IPO as there is already quite a lot of information about the company, its financials, performance over time and other such factors.
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