Initial Public Offering (IPO)

Initial Public Offering

When a company issues its shares or shares for the first time to all the people, it is called IPO or Initial Public Offering. It is also called an initial public offer.

IPO is mostly offered by new and small companies. Most companies offer IPOs when they need capital to expand their business or when they want to list on the stock exchange, but this is not necessary because IPOs are conducted by large privately-owned companies. are also presented.

The company issuing the IPO may seek help from an underwriting company, which helps determine how to issue a security (guaranteed) (common or preferred) and what is the best price for an IPO and how to market it. When is the right time

Types of IPO

There are mainly two types of IPO – Fixed Price IPO and Book Building IPO.

1. Fixed Price IPO

The investor has to pay the full price of the share while applying to participate in this IPO. The demand from the market is known only after the issue is closed. Some companies set an issue price for the initial sale of their shares. Before going public, investors are able to know the price of the share.

2. Book Building IPO

In this IPO, investors need to specify the number of shares they wish to buy and the amount they will be able to pay per share. In this, companies launching IPO give investors about 20% price band on the shares.

Any investor who wishes to buy the shares, they bid for the shares till the final price is fixed. The highest stock price is called the cap price and the lowest share price is called the floor price. The final decision regarding the price of the shares is determined by the bids of the investors.