What is full form of IPO?
In the daily newspapers, TV channels we see the term of IPO which is used commonly by the different companies but we usually don’t know this term background.
To clear the background and understand the full form of IPO I am writing this article.
There are many companies who offer the IPO and provide the opportunity to get the shares of that specific company. This term is used usually in this context and in each country this method is common for providing the shares of the company to the public but what is the full form of IPO? That is the question we concerned here.
information about Full Form of IPO
The full form of IPO is Initial Public Offering or in some places, it is called stock market launch.
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Initial public offering is the process of offering the private company stock to the public to seek the investments for the projects and in reverse company gave its shares to the public. Commonly smaller and younger companies offer their stock market shares to the public in order to expand the capital.
This process is also known as a floating process because company goes public in this process. Details of a public offering are given in the form of prospectus to the serious purchasers of the shares. There are many benefits of such a process because companies got the required capital and easy trading is enabled in this process of floating.
After the initial public offering shares of the company speeded in the open market and this is called free float. Besides the many benefits of initial public offering there are some disadvantages like costs associated with the banks and legal fees and this process also required the disclosing of the sensitive information of the company.
There are some alternatives to this method like Dutch auction which is also applied for a similar process. The procedure of the initial public offering is governed by the different laws according to different countries for example in the United States the procedure of the IPO is regulated by the securities and exchange commissions under the act of Securities act 1933 and in the area of United Kingdom UK listing authority is responsible to review the procedure of initial public offering.
Companies in different countries plans before the initial public offering and the best plans lead the companies to become giants in the public and earn more profits.
According to a book, there are seven steps to plan the initial public offering and these steps are given below.
- Developing skillful management and the team of professionals.
- Growing the business of the company according to the eye of the public.
- Obtain the financial statements through auditing according to the IPOs accepting principles.
- Clarify and clean up the acts of the company for the better understanding of the public.
- Establishing the anti-takeover defenses which protect the company in the situation of any hurdle.
- Developing excellent governance.
- Forming of inside opportunities for a bail-out and got the full advantage of the IPOs windows.
I have explained the full form of IPO in the above paragraph and I hope you have understood it well.
History of IPO:
In the early ages, this concept was not available for the companies but the earliest company who introduced this concept was the case of Publican during the age of Roman Republic.
In that time Publicani was the first case which divided the shares into the public to increase the capital.
There is strong evidence that the shares of the company were distributed in the public and trade of these shares was done in the market of Temple of Castor and Pollux. In the start of the modern period, this concept was introduced by the Dutch companies.
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The first IPO relied on the laws of modern initial public offering was offered by the Dutch East India Company during the year 1602. Dutch East India Company distributes the shares of the company in the public in order to increase the capital for the different projects.
This company was the first company who introduced the concept of Bonds and shares of stock in the public and after this company, this trend goes viral and other companies adopted this method to increase the capital. This concept was introduced first time in the United States by the Bank of North America during the year 1783.
This method of floating the company in the public has many advantages but besides the advantages, it has several disadvantages.
Advantages of IPO:
When a company lists its name on the public exchange the money paid by the investors directly goes into the company accounts which uplift the projects of the company and remove the previous debt of the company ultimately increase the capital.
Following are the advantages of the IPO.
- This method enables the company easy access to the required capital.
- It increases the image of company in the public, prestige and also increases the exposure.
- It attracts the more employees and better management system through the process of equal participation.
- It creates many financial opportunities for the company, debt, and easy access to bank loans.
- It facilitates the purchasing or acquisition for the company.
- It increases the equity base also.
Disadvantages of IPO
There are some disadvantages to this process also but mostly companies overcome these disadvantages by the proper use of rule and law according to the country.
- There are legal marketing, accounting costs which are difficult to achieve by a smaller company and these costs are the major hurdle for an initial public offering.
- This process required to disclose the sensitive information of the company related to finance and business.
- Very much time is required to plan the IPO by the best management.
- Risk of not raising the funding.
- Public spreading of the important information which is very useful for the competitors, customers and other sellers.
- Loss of complete control due to invading of other investors and shareholders.
- It increases the risk of legal actions.
In the above article all the required information to understand the full form of IPO is explained.