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What is IPO & What are the Advantages of IPO?

14 May 2021 0 COMMENT

An Initial Public Offering (IPO) is the first time a private company's stock is made available to the public for purchase. Smaller businesses seeking more money are more likely to issue initial public offerings (IPOs), although large private companies seeking to go public may also do so. Initial public offerings (IPOs) can also be used to monetise the investments of early private investors.

Rather than selling the business or bringing on new partners, the entrepreneur can list it on a stock exchange.

An initial public offering (IPO) is used to do this (IPO). An initial public offering (IPO) is when a company's stock gets sold to the public for the first time. A young entrepreneurial company most issues an IPO, but older firms or even public sector enterprises may also get issued funds to raise funds from the public.

Here are some of the advantages for the company:

  • Most businesses will struggle to raise money from venture capitalists and other large investors. It is not just a matter of potential investors not being available. Investors may be present, but they may not be willing to give the entrepreneurial venture a reasonable valuation. In such situations, it is prudent to pursue equity support from the public, who might place a higher valuation on the company.
  • When a company gets publicly traded, the public image improves as well. It attracts the attention of suppliers and consumers. It also becomes easier to attract businesses. Furthermore, banks would be more likely to lend to publicly traded corporations than to privately-owned companies.
  • Even private limited companies may issue stock to their employees under Indian labour laws. However, the laws make it very difficult, and the processes are not well structured to help with liquidity. It is very simple to set up employee stock option plans and motivate the employees in public limited companies.
  • Mergers and acquisitions are much easier to do when the business gets publicly traded. Processes become more straightforward, and assessments become more market-driven. As a result, assessment is no longer a major concern.
  • Entrepreneurs may liquidate a portion of their holdings by listing their business. Additionally, if the company has already accessed venture capital, listing allows venture capitalists to liquidate all or part of their holdings.
  • The business no longer runs on the entrepreneur's impulses and desires. There will also be a board of directors that is answerable to the general shareholders. The company's board must be carried out in a transparent manner and in the best interests of the shareholders.
  • In a sole proprietorship, all profits go to the owner, but in a publicly-traded company, the owner cannot keep all profits. Profits must get distributed to all other shareholders through dividends and bonus shares.
  • Earlier, there was no way for an entrepreneur to keep track of everyday improvements in his or her company's worth. There is a stock price in a publicly-traded company that indicates the company's worth, which fluctuates during the trading day. The entrepreneur must ensure that business decisions and company success are always in the best interests of shareholders.
  • India's listing and reporting conditions are among the strictest in the world. The publicly-traded company is expected to share details about its past results and plans regularly.

Disclaimer : ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. Please note, I-Sec is acting as a distributor to offer IPO distribution related services and distribution of IPOs are not Exchange traded products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.