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What is an Initial Public Offering (IPO)?

What is an Initial Public Offering (IPO)?


The stock market is one of the hottest ways of investing in today’s world. More and more people are looking for opportunities to earn higher returns in the stock market. Initial Public Offering (IPO) is an attractive way to invest in the stock markets. In this article, we will know about what is IPO?  and its related information.

IPO meaning (What is IPO? )

An Initial Public Offering (IPO) is an arrangement in which a private company offers its shares to the public for the first time. By this arrangement a private company becomes a public company. In this process the company sells its shares to institutional investors, then sell the shares to the public.

Small young companies as well as large privately owned companies issue IPOs. Small companies issue IPOs to seek additional capital needed for expansion. Large companies issue IPOs to be publicly traded.

What is market capitalisation ?

Investors are always eager to apply for the new IPO application. This is because listing of shares on stock exchanges can have many benefits. Also, investors who are looking for long-term investment may want to invest in IPOs of good companies.

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What is the full form of IPO ?

Initial public offering is the full form of IPO. To get maximum capital, the company introduces IPO, the easiest is to take money from the crowd, if 1 lakh people give even one rupee to any one person, then he will become a millionaire, the same happens in IPO.

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Getting listed on the stock exchange adds to the credibility of the company – which comes in handy in many scenarios. The company is expected to be accountable to its hundreds (and thousands) of shareholders, and is therefore held accountable.

An IPO is a very easy way to understand what is the emotion or sentiment among the people about which ever company it belongs to. With this, it can take the company to a different height. The company benefits when the share price rise and This gives the company valuable benefits when negotiating long terms, interest rates on loans, mergers or acquisitions. With loans, listed companies can get capital at a lower cost, that is, at a lower interest rate. Mergers or acquisitions are facilitated so as to make valuable company shares a part of a business deal.

Eligibility for filing IPO

Following are the eligibility criteria for companies planning to file IPO as prescribed by SEBI.

The company should have net tangible assets (defined as physical assets and monetary assets of at least Rs 3 crore each in the last three years. This does not include virtual assets with fluctuating value such as shares)

The company should have had a minimum operating profit of Rs 15 crore for at least three years in the last five years.

The size of the IPO cannot exceed five times the value of the company.

Even if these qualifications are not met, the company can file a request for approval of the IPO with SEBI. But, for such approval, the IPO can only take the book building route, where 75% of the stock is to be sold to QII- Qualified Institutional Investors. This has to be done for the sale of shares under an IPO to be considered valid. Otherwise, the IPO is canceled and the capital raised has to be returned. In connection with knowing ( what is IPO), we understood the meaning of IPO and understood its need.

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SEBI functions to protect the interests of investors, while ensuring that the eligibility norms are not too stringent to deter potential companies that have the potential and vision to deliver growth.

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