The completion of the IPO process helps a company to go public and raise money required to carry on with its operations and achieve its targets. The process also enables the company to get access to liquidity.
To successfully complete the IPO process, the company must abide by the guidelines prescribed by the stock exchange in which it desires to trade its stocks.
If you are a business owner who wishes to get your company listed on a stock exchange or anyone simply interested to learn about the IPO procedure, we’re here to guide you.
IPO process steps:
The whole IPO process consists of 7 simple steps. We’ll take you through each step, so that you can gain a comprehensive understanding of the entire IPO procedure.
Step 1: Hire an Underwriter or Investment Bank
Every company starts the procedure for IPO filing by hiring underwriters. So, who are underwriters? They are intermediaries between the company and its investors who study the company and draft an underwriting agreement (consisting of the details of the deal, securities to be issued and the capital that is expected to be raised from the IPO) and other documents, required for the process of the initial public offer. Usually underwriters are from investment banks or other financial institutions.
While choosing an investment bank to guide the IPO process, make sure that it has a good reputation and the industry expertise, capable of providing you access to professional, institutional and individual investors.
Step 2: IPO Registration
The next step consists of preparing the Red Herring Prospectus and submission of the same within three days before the IPO date to the registrar. The document, a mandatory per the Companies Act, should be compliant with the rules prescribed by the Securities and Exchange Commission and Securities and Exchange Board of India.
A Red Herring Prospectus should:
Clearly define industry-specific terms and the risk factors that need to be known before investing in the firm.
Contain detailed sections on the industry within which the company operates, company’s business activities, financial statements and management.
Contain any legal and other information regarding the company.
Step 3: SEBI verification
The IPO can proceed only after the Securities and Exchange Board of India verifies and approves the Red Herring Prospectus and the company disclosures. Following the verification, the date for the IPO is finalised and announced.
Step 4: Stock Exchange Application
After the SEBI approval, the company applies to the stock exchange within which it desires to trade its stocks.
Step 5: Creating a Buzz
The public needs to be aware that the company is going public. To do this and to gain the attention of potential investors, the company needs to market and advertise about itself and its IPO launch over a period of two weeks.
Step 6: Pricing of IPO
There are two ways of IPO issue – Fixed price IPO or Book building offering.
An IPO wherein the share price is fixed and made known to the investors in advance is known as fixed price IPO.
In a book building IPO, investors are given a price band within which they can bid for shares. The minimum price of the band is known as the IPO floor price while the maximum bid price is known as the IPO cap price. The cut-off price, or the price at which the shares will be sold, is determined only after the bidding period ends. This process helps the company understand the demand of its shares in the market.
Step 7: Share allotment
The company makes the prospectus and IPO application form public and sets the time for investors to apply. The number of shares to be allotted is determined after the closure of the bidding period. In case of oversubscription, the number of shares are proportionately allotted to investors. The allotment process is usually completed within 10 days.
1.Where do I get an IPO application form?
Investors can obtain and fill IPO application forms online by logging into their demat accounts. Forms can also be obtained from share brokers, and syndicate banks.
2.Can I revise or cancel my IPO application?
Yes. As a retail investor, you can revise or cancel your IPO application before the bidding period ends.
3.What is the process after the IPO is closed?
Following the closure of an IPO, the allotment of shares takes place.
4.What documents have to be filled out for the IPO process?
The company needs to fill documents including the underwriter agreement and the Red Herring Prospectus.
5.Can I apply in an IPO through multiple applications of the same name?
No, an individual can apply only once in an IPO. Applying multiple times leads to the rejection of your application.
6.How long does it take to complete the IPO process?
The duration required to complete the IPO process usually ranges between three to nine months. It can vary as the entire procedure is complex and depends on several factors.
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Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.For more information, see our Legal disclosures here.