The process of offering shares in a private corporation to the public for the first time is called Initial Public Offering (IPO).
Flow Chart of IPO Process
- Approval of Board: An approval of the Board of Directors of the company is required fo raising capital from the public.
- Appointment of Lead Managers: The Lead Manager is a Merchant banker who orchestrates the issue in consultation with the company.
- Appointment of other Intermediaries: Several intermediaries facilitate the IPO process. A company secretary, an underwriter, bankers, brokers, registrars etc. are selected.
- Filing of the Prospectus with SEBI: All the companies seeking to make a public issue have to file their offer document with SEBI. The Offer document or Prospectus communicates the information about the company and the proposed security issue to the investing public.
- Filing of the Prospectus with Registrar of Companies: Once the SEBI and Stock Exchanges gives approval to the prospectus, offer document, must be filed with the Registrar of Companies, along with required documents by the Companies Act, 1956
- Filing of Initial Listing Application: Within 10 days of filing the prospectus, the initial listing application must be made to the concerned stock exchanges, along with the initial listing fees.
- Promotion of the Issue: To promote the issue the company holds conferences for brokers, press, and investors. Advertisements are also released in newspapers and periodicals to generate interest among potential investors.
- Statutory Announcement: The Statutory announcement of the issue must be made after seeking the approval of the lead stock exchanges. This must be published at least 10 days before the opening of the subscription list.
- Collection of Applications: During the period of subscription, the bankers to the issue collect application money on behalf of the company. While the managers of the issue, with the help of registrar, monitor the situation. Information is gathered about the number of application received in various categories, the number of shares applied for, and the amount received.
- Processing of Applications: The applications forms received by the bankers are transmitted to the registrars of the issue for processing. This mainly involves scrutinizing the applications, coding the applications, preparing a list of applications with all the relevant details. etc.
- Establishing the Liability of Underwriters: If the issue is undersubscribed, the liability of the underwriter has to be established.
- Allotment of Shares: According to SEBI guidelines, one-half of the net public offers have to be reserved for applications up to 1000 shares and the balance one-half for larger applications. For each of these segments, the proportionate system of allotment is followed.
- Listing of the issue: The detailed listing application should be submitted to the concerned stock exchanges along with the listing agreement and the listing fee. The allotment formalities should be completed within 30 days after the subscription list is closed or such extended period as permitted by the lead stock exchanges.
STAGES OF THE IPO
1) Pre-issue
- Due Diligence
- Draft Offer document to be filed with SEBI
- Final Offer document to be filed with SEBI
- Application for listing with Stock Exchange
- Promoter’s Contribution to be brought in prior to the issue
- Appointment of Compliance Officer
- In-Principal approval from Stock Exchange to be obtained and filed with SEBI
- Issue Advertisement
- Book-building and Bidding processes to be followed
2) Issue
- Subscription list to be kept open for at least 3 days
- Issue open with in the time prescribed
3) Post-Issue
- Monitoring reports to be submitted to SEBI
- Final Post issue monitoring reports
- Post Issue Advertisements
- Dispatch of shares certificates etc. and allotment of the documents.