What is an IPO? How does a Company Offer IPO?

Browsing through newspaper pages many of us have come across this term called IPO. There are various ads posted by different companies in the newspapers for the same. Before getting into the details of this whole topic, the meaning of Initial Public Offering should be set clear.

What is an IPO?

IPO stands for Initial Public Offering. What this means is that when a privately held company by offering their shares to the public becomes a public traded company for the first time. When a private company makes their shares open to the public to become a publicly traded company, it renounces the status of being a private company.


Usually, a private company is held by a handful of shareholders, but when they allow the public from outside to hold shares in the company, then it switches its status.

The shares are traded to the public. It is through the IPO then that the private company which has now become a public traded company gets its name listed on the stock exchange.

IPO means a private company offering shares to the public for the first time. It is in the process of becoming a complete public company but not as of yet. A public company, on the other hand, has already given a major portion of its shares to the public.

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How does a Company offer IPO?

An investment bank is hired by the private company going public to handle the IPO.  After this, the investment bank finalizes all the financial details with the company via an agreement.

The final step after the agreement is finalized is that the company along with the investment bank files the registration statement with the SEC. After the SEC scrutinizes all the necessary documents, it allows a date for the announcement of the IPO.

Once the Initial Public Offering is announced & circulated to the public, the general public then can apply for investment either online or via a form. Once IPO allotment is done, it comes in the demat account of the investor.

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Tips for Releasing an IPO 

In today’s digital era lots of companies jump into the stock market without a steady plan to make profits but ultimately end up making losses. To release a good IPO may take some time and effort but it not entirely difficult to find. Some of the tips to follow before IPO allotment are as follows

  • Firstly, the company should do their research well and figure out how to select an IPO
  • Secondly, the company before releasing should know how it would utilize their money.
  • Investments should always be made at a cut off price
  • The prospectus of the company should also be evaluated.
  • Before releasing, a good broker needs to be found.

These are few of the tips to be followed before releasing an IPO.

What is an IPO Process?

One of the main motives of a company going public is that they would like to make huge profits by making their securities available to the public in exchange for capital. When a private company decides to become a public company, its first step would be to start looking into IPO.

The steps which are required before making an initial public offering are as follows

  • Firstly, the company needs to hire an investment banker
  • Secondly, they need to register with the SEC
  • The Red Herring document needs to be drafted
  • The company needs to look into how the Initial public offering is priced
  • The company needs to make then its prospectus available to the public
  • Finally, after all these steps the company should go through with the idea of an IPO.

How Does IPO Work?

How the IPO works is that a private company usually offers its shares and stocks to the general public for the first time. Through the public, the company would gain initial capital and then would be listed in the stock exchange.

To complete the whole process of the private company becoming a public company, there are other factors involved like a team of experts would be required to assess the whole procedure. By a team of experts, we mean auditors, lawyers, underwriters, etc.

Thus, from the above discussion, the concept of IPO becomes much clearer as to what an Initial public offering is and also the way in which they work. Before releasing an IPO, a private company should be sure that they want to go public.

Get to know everything about IPO

Who is Eligible to Invest in an IPO?
How to Apply for an IPO Investment?
What are the Advantages of IPO?
What Are The Disadvantages Of IPO?
How is an IPO valued?
Various Factors influencing IPO Valuation
What are the Different Types Of IPO?
What is Fixed Price IPO Issue?
What is Book Building IPO Issue?
IPO Investment – Guidelines for Beginnners
What is the Role of The Registrar of an IPO?
What is the Role of Lead Managers in an IPO?
What is an FPO or Follow on Public Offering?
What are Primary and Secondary Markets?
What is the Lifecycle of an IPO
How an IPOs Price Band is decided?
How an IPOs Release Date is finalized?
Where to find an IPO Application Form?
Is PAN Card mandatory for IPO Investment?
Can a 18 Year old Apply for an IPO?
Best Tips to choose Right IPO
For how long an IPO issue is open?
Important Documents required for IPO
Applying an IPO doesn’t guarantee IPO allotment
Investing in IPO can be Safe yet Risky
One IPO One Application
What is the Basis of IPO Allotment?
Revise or Cancel Your IPO Application
What is Book Building Process?
What is Fixed Price Process?
Who are Retail Individual Investor?
What is an IPO Allotment Process?
Who are Non-Institutional Bidders?
What is Allotment Basis?
Pros and Cons of Applying in NII Category
Who are Qualified Institutional Bidders?
Who are Anchor Investors?
What is Floor Price for a Book Issue Building?
What is Cut-off Price for a Book Issue Building?
What is Pre IPO Placement?
Days Needed to Issue List in a Market
What is BID Quantity and BID Price?
Who are Syndicate Members in IPO Processing?
Timelines for Book Building IPOs in India
How many IPO Applications allowed from same Bank?
How to make your IPO Application Unique?
Subscribe IPO in a Discounted Price
Apply for an IPO Online without a Broker
Apply IPO in both Retail and HNI Category
Market Lot Size and Minimum Order Quantity
Non-Institutional Bidder Category of an IPO
Maximum investment in HNI Category
How to apply IPO Online?
What is Right Issue?
What is Declaration date?
What is Record Date?
What is Ex Date?
What is Date of Payment?

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2 thoughts on “What is an IPO? How does a Company Offer IPO?

  • October 20, 2019 at 18:33

    What is the criteria of allotment of shares for IPO under retail category. Despite the fact that a retail investor applies for shares within the limit, viz <Rs.2 lakhs, why not even a single lot of shares is allotted. e.g. If I apply for shares to the extent of Rs.1.90/1.95 lakhs, depending on the size of the lot, and if I am not allotted even one lot, what are the assumptions I should take in such an outcome. To put in simple terms, if a retail category of IPO is 5 times oversubscribed and If I had applied for 15 lot of shares, should I be not eligible for allotment of 3 lots of shares. What if I do not get allotment of even 1 lot of shares under this circumstance. How to take it forward in such cases? Would appreciate your views/advice on this.

    • October 21, 2019 at 21:45

      Dear Sir,

      Allotment is entirely done based on Lottery system, in case of massive over-subscription. If the over subscription is less, then there is possibility of allotment for every participant.

      More – If the Unique number of IPO Participant is less than Total Lots, then each participant gets atleast 1 allotment. If the Unique number of IPO Participant is more than Total Lots for subscription, then allotment is based on lottery system.


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