What are the ways in which an IPO can be initiated ??

What is meant by IPO ??

An IPO means the initial public offering by any company in the stock market at which the company is already listed or is there in existence or will be entering the stock market through the IPO. Through the IPO, it refers to the situation at which the company is making its position in the market through which the company can get money and utilise for the purpose of the companies objectives.

Why any company makes an IPO ??

The main reason behind the company making the IPO is that of the liquidity crunch among the companies. The liquidity among the companies is very less because of the money invested in the working capital and so they don’t have money to make it to the research team and do some innovation. Mainly the money raised through IPO are for some specialised purpose only and so they may get new shareholders in the company which may increase the confidence among the members. It is also an amazing chance to the directors or the promoters of the company to get there shares sold if they don’t want to hold it. They may offer for sale such kind of shares and dilute there part of subscription.

Eligibility for IPO:

Net worth of the company should be atleast 1 crore in last 3 years.There should be distributable profits in the last 3 years.Tangible assets should be atleast 3 crores in the period of 3 years.The issue price should not exceed the amount equivalent to 5 times the net worth which existed before this issue.

Mechanism for offering IPO:

There are mainly 3 ways where and IPO can be initiated. They are :

AuctionsBook BuildingsFixed Price

Auctions:

The IPO auction is similar to the auction conducted at the online shopping portals. It also applies to here that the person making the highest bid would take the shareholding or the membership. There may be two ways an IPO auction can be conducted. One way is through Single Price auction where the price is fixed at beginning of the auction and they are only required to bid on the price, the person with highest bid would take away the IPO at the pre-determined price. On the other hand, there is Dutch auction which says that the person bidding the highest would take the IPO at the price at which he took away the

Book Building:

It is the mechanism through which the customer can decide there own price and the quantity they want to purchase. They are free to take as many as securities as they want. This type of mechanism was very much famous and started at the time of 1980s and they have become more popular nowadays where 90% of the IPO are with the book building mechanism only.

Fixed Price:

Under this mechanism the company offering the IPO has predetermined the number of shares to be offered and at what price to be offered. Any investor has to purchase that particular number of shares and cannot change it. It is much a traditional concept and is not relevant nowadays. If you have any query regarding “What are the ways in which an IPO can be initiated ??” then please tell us via below comment box.. Recommended Articles

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