What is IPO?Things you need to know before investing in IPO

People faces difficulty while undersanding what an IPO is,How it works?,Why a company goes public? etc.This article will give you indebt knowledge about IPO.

Read the article till the end.There are bonus points for you in the end of the article.

WHAT IS IPO?

IPO stands for Initial Public Offering.IPO is the process in which a private company raises capital by selling stocks to general public.When a company decides to bring an IPO it hires an underwriter also known as investment banks.The underwriter decides the price of the stock to be issued,which exchange should the stock should trade etc.After IPO the company no longer remains private.It becomes publically held company.It has to disclose it's financial statements quaterly,it's plan for the future,the projects it is undertaking to the public.
When a company brings IPO it comes in primary market and after that the shares are traded in secondary market that is when company brings IPO the money goes direct to the company in return for the shares and after that in secondary market the shares are traded between investors.

WHY A COMPANY GOES PUBLIC ?

1. A company goes public when it want to raise capital and doesnot want more debt so this is the option which seems best.
2. Going public helps the company to share it's risk with the public.
3. Early investors are also benifited as it helps them for easy exit.
4. When a company is under huge debt and it want to reduce debt so it brings ipo so that by selling some of it's share it can reduce debt.
5. If a company want to raise additional funds in future it can raise by SEO as it gets already listed on stock exchange. 

PROCESS OF IPO :

1. The company hires an underwriter to raise equity through the IPO process.
2. The underwriter collects the information and prepare the prospectus.
3. The underwriter puts together a syndicate and files the firm's intent to raise equity with regulator.
4. The regulator reviews the prospectus.
5. The underwriter and the team then estimates the demand of the stock of the perticular company and also the price.If some revision is to take place in price then it is done.
6. The company issues the share on IPO date.

DIFFERENT TYPES OF IPO : 

1. Fixed price IPO
2. Book building IPO

1.  Fixed price IPO : In this type of IPO the company decides the price of the price of IPO along with the investment    bank and investor can invest in IPO at that fixed price only.
2.  Book building IPO : In this type of IPO the company decides the price band of the IPO along with the investment   bank and investors can bid from the price band.

DISADVANTAGES OF IPO : 

1. When a company goes public there is more disclosure.This is bad for companies as they have to disclose everything to the investors which might be risky for them as their competitors will also know about their plans.
2. After going public there is more regulations for them for example it's mendatory for them to give financial statements every quator.
3. There is more time and efforts are required for preparing statements. 

  

BONUS POINTS :

1.  When a company goes public there is lock up period for the large investors such as company executives etc.Lock up period restricts these investors to sell their sale for a specific period of time after the IPO. Lock up period typically last from 90 days to 180 days.
2. On the first day of trading,IPO price on an average is 15% higher than offering price. 
3. The Dutch East India Company was the world first formaly public lised company

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