Initial Public Offering Of Stock

A privately held company is taken public using an initial public offering (IPO)

. This means that a privately owned enterprise will follow a complicated process drawn out by a number of advisors and accountants to become a publicly traded company. A specific number of share certificates will be issued at a set price, with each shareholder then becoming a part owner of the company. Each share can then be traded on the stock market.

Becoming a publicly traded company can be one of the most important steps in growth strategy and raising capital. An IPO is an extremely complicated process involving a number of legal and corporate requirements.

Skilled professionals drawn from the legal, accounting and underwriting fields are used to work together and orchestrate the conversion of a private business into a successful public company. This will initially involve a critical analysis of the company to ensure it meets the admission requirements to be floated on the stock exchange.

The biggest benefit of an IPO is definitely the massive injection of capital to finance ongoing operations and implement growth plans. This can also improve brand recognition and public trust in products and services provided by the company.

Before issuing public shares a company must file a registration document with the Securities and Exchange Commission (the SEC). This registration document, and accompanying prospectus, contains precise and detailed information about the issuing company and its business. These documents are reviewed by the SEC to ensure they conform to certain legal requirements. If these requirements are met then registration becomes effective and shares are priced. This process is designed to protect the investor.

Everything an investor would like to know about a company and its plans for the future can be gained from this registration statement and accompanying prospectus. Underwriters are hired to help companies issue new stock to the public, playing a critical role in the IPO process. An underwriter will provide procedural and financial advice to the company, buy the initial issue, and then resell it to the public. By this the publics receptivity to the new issue can be judged, and the shares properly priced and placed.

A change in the company's structure will generally accompany an IPO. Underwriters assist in the transition from a privately run business to a public company which now has a board of directors, multi-level management, and shareholders. A new manager is often hired after an IPO to take responsibility of the issues involved in public companies.

The quarterly financial results of the business must now be made public, statements are filed with the SEC for anything that may significantly affect the company and its operations, and an AGM involving shareholders is conducted. At this meeting all important issues will be discussed and voted upon.

In order for a business to be successfully made public, there are a number of issues to consider. The company must first consider the growth potential for its products or services and review the economic conditions, choosing the right price and the right time to go public.

In smaller economic climates such as those that exist in Canada, releasing shares has a significantly lower threshold for either loss or gain compared to larger markets like the US.

by: Adriana Noton

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