Understand The Process Of IPO

What do we understand on hearing the news of a company going public? You are on the verge of building a company and you are confused on whether to register it as a private limited company or a public company. By a public company, the financial world means that the shares of the company are being traded in stock markets and anyone in the general public can buy them to become shareholders of the company. As a shareholder, you will get a percentage of the earnings of the company for that share your own and this is called dividend.

A company simply cannot get listed on the stock market to sell its shares. Becoming public and offering shares in the trade market for the first time is termed as Initial Public Offering or IPO. The conversion looks like one step but is actually a series of decisions requiring financial intelligence.

Two types of companies issue IPOs:

  • Start-ups’ or newly incorporated companies looking for funds and expansion possibilities.
  • Large established private companies which wish to become a publicly traded organization and involve the public.

How can you make your company publicly traded?

Since issuing IPO is a very strategic decision, you need multiple experts in all the related domains to decide the number of shares, trading features, policies, dividends and retaining and cash flow from sold shares. The team should have:

  • Financial advisor
  • Legal expert
  • Certified Accountant
  • Trade market analyzer
  • An advisor from Securities and Exchange Commission (SEC)
  • Underwriting firm

Once the external panel is formed, the second step is to prepare a detailed financial review of your company, which studies and reports the performance analysis, infrastructure, future prospects etc.

The next step is to decide on the IPO parameters such as:

  • Securities to be issued and the agreement terms
  • Number of shares and their ideal offering price
  • Best time to announce the rounds of IPO issue
  • Percentage of dividend ratio, retaining earnings and purpose of retaining

Once these decisions are made and the final report is printed, it has to be submitted for official auditing.

After getting the green signal from the audit, you have to file your company’s prospectus and application with the SEC to confirm the date to issue the public offering. With the announcement, the companies normally talk about the expected total funds to be raised through the sale and utilization of these funds. With the share and the dividends, the shareholders have some right to know the progress of the company.