IPO (initial public offering) is a public launch of company shares to make them available to institutional investors and individuals for purchase. Generally, one or more investment banks come together to underwrite an IPO and arrange the listing of shares on multiple stock exchanges. The initial public offering is one of the best things that have happened in the corporate world. People have a good option for investing. Also, from the company’s point, they have a good option for easily getting capital to start a business. IPOs have become a great event for any company. Companies wait for longer times to have an iPod. The company who has performed this event gets many advantages.
Advantages of an IPO
Access to Capital
An IPO helps companies and businesses to raise large sums of capital which might be difficult to raise in the form of debt. Issuing an IPO allows individual and institutional investors to raise a substantial amount of capital by issuing its equity shares or stocks to individual and institutional investors.
Enhanced Public Image
A private company can gain recognition and brand exposure by issuing an IPO. The IPO issuance involves extensive marketing activities which help the company, and its products, services, and brand also receives an enhanced brand recognition and increased the public image, enabling the company to expand its consumer-based nation-wide.
Public limited companies can issue stock options to their talented employees and management personnel as an incentive for their performance. Talented and hardworking employees are one of the most significant assets of a company who drives the company towards success. As a result of this, it is vital for any company to retain its talented and high-performing employees.
Issuing Stock Options as an incentive helps in enhancing employee morale and motivation levels within the workforce, as a result of this reducing in employee turnover and ensuring retaining of talented and high-performing personnel.
Aids in Facilitation of Mergers and Acquisitions
Issuing an IPO involves in issuing of stocks and shares which are traded on the stock market. While deriving the valuation of shares of a private limited company can be complicated, measuring the value of shares of public limited companies is very straight-forward as these stocks and shares are traded on the stock exchanges with its prices being extremely transparent.
A transparent valuation of stocks of a company enables and facilitate mergers and acquisition of public limited companies much easily compared to privately-held companies.
Sharing Corporate Responsibilities
While private limited companies can be operated and managed as per the whims and fancies of the promoters and the entrepreneurs, publicly-listed companies are owned by the shareholders and administered by the Board of Directors. The entrepreneur and promoters of publicly-listed companies are answerable to both the shareholders and the Board of Directors.
Further, public limited companies need to publish their accounting and financial results, adhere to disclosure rules and regulations of SEBI and the stock exchanges etc., making public limited companies more accountable compared to privately-held companies.
Share Profit Sharing
A company transforms from the private limited company into a public limited company by issuing an IPO and issuing its stocks and shares to the public. The company shares a portion of its profits in the form of dividends. Some of the primary factors people invest in a company’s share are to earn dividend income and earn capital gains when the market value or the trading price of the stock increases on the stock market.
While entrepreneurs and promoters build businesses, their priorities might change during the later stages of their lives. Many entrepreneurs might wish to retire once they create an acquire substantial wealth. While promoters of private companies often find it difficult to retire and exit their businesses, promoters and entrepreneurs can sell their shares and resign from their positions three years after issuing an IPO and allow the Board of Directors to manage the day-to-day affairs of the business.
Reduced Cost of Capital
While raising debt can be an expensive form of capital whose repayment is fixed, mandatory irrespective of the profitability and cash flow position of the company, the dividend payment can be adjusted, deferred or even withheld depending upon the profitability, cash flow position and future cash requirements of the company.
Let us see the various advantages that have changed the world.
1. Earlier people use to purchase gold and kept it. It does not provide much return to them
2. On the other hand, there was a debtors business in that also people have to pay substantial interest, which was also a loss for any business community. From another point of view, generally the creditor at last show, its liquidity and people have to run a lot for their money. However, due to initial public offering this all things ha seen sorted very quickly.
3. It is the cheapest method for a new Company to raise fund. Bank loans and other ways are costlier. Therefore the company has to pay substantial interest and all.
4. Initial public offering brings the company a new chance to have their name in the market; they get a further exposure with the fund.
5. Due to initial public offering there comes many of the financing opportunity such as equity, convertible debt, cheaper bank loans, etc
6. A person purchasing stock also gets the ownership in return while a person giving money to a creditor gains nothing.
The initial public offer has its changes from a single person to the whole world. It has given a new value to money. The new investing scheme was provided to a country. Also, not only this it has offered different and radical changes in the business world.