Many new companies seek to increase their investment capital by attracting potential investors. When a organization decides to enter the stock market, their starting offers for investors are known as IPO. The term IPO stands for Initial Public Offerings. This is an exciting and pivotal point in the history of the company. It’s important to remember that IPO investment is not only beneficial for expanding companies, but also for huge, privately-owned entities, and corporations seeking to transform into publicly-traded businesses.
If your company has decided on offering IPO in India, then you can start by engaging the services of an investment bank or underwriting firm, who will assist you in selecting the best type of security to be issued, selecting the appropriate opening price offerings, the right amount of shares and lastly, the time-frame.
IPO investment should not be confused with the term public offerings. The latter is used extensively by many people and is an umbrella term that includes IPO, but has a wider connotation. There are a plethora of ways through which the company can go public, and an IPO follows a specific set of procedures. Following are the preparatory steps that are involved in the IPO in India process:
- A dedicated IPO team typically consists of professionals like underwriters, lawyers, exchange and securities commission experts, and certified public accountants.
- Vital company data like financial performance and anticipated future operations are assimilated for the formulation of the prospectus. After this is done, the information is circulated for the purpose of soliciting reviews.
- An official audit is conducted after the submission of the financial statements.
- Finally, the date of the offering is decided, and the prospectus is filed by the organisation with the SEBI.
Company employees can get the opportunity to invest. However, this largely differs across different organizations. Here are some factors that should consider before deciding to invest in IPOs.
Underwriting
The collaboration between the company and an investment bank for the purpose of formulating the IPO is known as underwriting. It also includes the determination of the stock price and a thorough financial analysis. Subsequently, an announcement concerning the IPO investment scheme is made.
Obligation
Before the company is listed, the shares are given to staff by the management, so number of stocks to be given to an employee or not is company’s discretion and employee has no say. He can only accept or decline.
Prices
The initial stock prices for IPO in India is generally low, and employees can capitalize on this opportunity. This is the best period for staff-members to indulge in IPO investment within their organization.
Lockup
The stock price generally surges between the time of the IPO investment and secondary market offering. Thus, employees who purchase shares are required to hold them for a particular period before they can start selling. This IPO in India lockup can extend for up to 180 days, barring insiders from making quick initial profits that occur due to rise in stock rates. Hence, there is a fair amount of risk involved for the employees.
These important points should be carefully considered by all employees before they decide on making any kind of investment. It’s essential to make the right decisions to benefit from such deals.