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An initial public stock offering (IPO) referred to simply as an “offering” or “flotation,” is when a company (called theissuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Common stock is a form of corporate equity ownership, a type of security. It is called “common” to distinguish it from preferred stock. Preferred stock is a special equity security that resembles properties of both equity and a debt instrument and generally considered a hybrid instrument. In the event of bankruptcy, common stock investors receive their funds after preferred holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time.
In financial markets, a share is a unit of account for various financial instruments including stocks (ordinary or preferential), and investments in limited partnerships, and REITS..
Common stock is usually voting shares, though not always. Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company’s board of directors. Some holders of common stock also receive preemptive rights, which enable them to retain their proportional ownership in a company should it issue another stock offering. There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock. Additional benefits from common stock include earning dividends and capital appreciation.
In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.
An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.
Reasons for listing
When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of dissolution.
The existing shareholders will see their shareholdings diluted as a proportion of the company’s shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms.
In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list.
Benefits of being a public company-
• Bolster and diversify equity base
• Enable cheaper access to capital
• Exposure and prestige
• Attract and retain the best management and employees
• Facilitate acquisitions
• Create multiple financing opportunities: equity, convertible debt, cheaper bank loans, et
Private share placement
Private placement of your companies shares through licensed stock trading companies is a commonly used method for raising capital and success in using this method can be achieved providing that ;
a) Your company being suitable for future listing.
b) Your company’s desirability to a future buy out candidate.
c) Your company’s business proposal being suitable to stimulate a desire for investors to buy it’s shares.
Companies in this area of capital provision differ greatly in the types of companies they will accept and minimum amounts they will accept to be raised.
Normally these companies only profit from selling your shares at a discount from the share price which can mean there may be no initial fees but the discounts vary significantly between companies . So once again ABP’s in depth knowledge of the companies to approach, will give you the best and most speedy solution .
