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IPO Final

IPO Final

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Published by Avroz Amin Maknojia

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Categories:Types, Business/Law
Published by: Avroz Amin Maknojia on Jan 27, 2011
Copyright:Attribution Non-commercial

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11/13/2011

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1
 
INTRODUCTION
An
initial public offering
(
IPO
), referred simply as an "offering" or "flotation", iswhen a company (called the
issuer 
) issues common stock or shares to the publicfor the first time. They are often issued by smaller, younger companies seekingcapital to expand, but can also be done by large privately-owned companieslooking to become publicly tradedIn an IPO the issuer may obtain the assistance of an underwriting firm, which helpsit determine what type of security to issue (common or preferred), best offering price and time to bring it to market.An IPO can be a risky investment. For the individual investor it is tough to predictwhat the stock or shares will do on its initial day of trading and in the near futuresince there is often little historical data with which to analyze the company. Also,most IPOs are of companies going through a transitory growth period, and they aretherefore subject to additional uncertainty regarding their future value.
COMPANIES FALL INTO TWO BROAD CATEGORIES :PRIVATE AND PUBLIC
A privately held company has fewer shareholders and its owners don¶t have todisclose much information about company. When a privately held corporationneeds additional capital, it can borrow cash or sell stock to raise needed funds.Often ³ going public´ is the best choice for a growing business. Compared to thecosts of borrowing large sums of money for ten years or more, the costs of aninitial public offering are small. The capital raised never has to be repaid. When acompany sells its stocks publicly, there is also the possibility for appreciation of the share price due to market factors not directly related to the company. It usuallyisn¶t possible to buy shares in a private company. one can approach the ownersabout investing , but they are not obligated to sell you anything . public companies,
 
on the other hand , have sold at least a portion of themselves to the public and tradeon a stock exchange. This is why an IPO is also referred to as ³ going public´2
Why go public?
 Going public raises cash, and usually a lot of it. Being publicly traded alsoopens many financial doors:
y
 
Because of the increased scrutiny, public companies can usually get better rates when they issue debt.
y
 
As long as there is market demand, a public company can always issue morestock. Thus, mergers and acquisitions are easier to do because stock can beissued as part of the deal.
y
 
Trading in the open markets means liquidity. This makes it possible toimplement things like employee stock ownership plans, which help to attracttop talent.

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