Definition Of Ipo
Initial Public Offering (IPO) is a common term in stock market. The first offering of stocks by companies can either be new, sometimes young, or can be the existing ones who have finally decided to go public. It is mostly given by a new company to get necessary capital. Such kinds of investment do involve an equal amount of risk.
IPO determines the entry of that particular company in stock markets. But you might be the lucky ones if you could buy the shares at the IPO price which is usually less. So when it comes to investment it is an ideal one. You might find it difficult to predict whether the share prices would increase immediately after the initial period.
If the firm is well established, it can earn a good sum of capital through IPO. The whole procedure comes under the United States Securities & Exchange Commission. Trading activities function around SEC. Most importantly trading begins once the company has managed to sell all the shares. The issuing company has to register itself by submitting the form S-1. Sometimes, it might take the aid of reputed investment banks.
The bank will now decide the quantity of shares and their offering price. They sell the shares to public investors. These banks act as underwriters and enter into contract with the issuing company.
Now there are different types of contracts too. Contract of the firm commitment typically includes the underwriter assuring to sell all the shares at the stipulated price. Contract of Best Efforts urges the underwriters to give away as much as possible. Lastly, when it comes to all-or-none, the undertaker agrees to decide whether it is in a position to sell or forfeit the contract. The company can still issue shares after a certain time period through rights issue again at a time when it needs capital for further diversification.
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