Listing of a company on the stock market and the IPO application process
Here is an article on how to launch an IPO. 2021 has been the best year so far for initial public offerings (IPOs) and listings. Almost thirty-eight companies have already made their first offers through 2021, which includes some of the biggest trading giants like Zomato, Paytm, etc.
One of the questions that usually arises in the minds of young entrepreneurs is how to list your business on the Stock Exchange? Let us understand in depth how to list your business on a recognized stock exchange.
Eligibility conditions to be met for the IPO
The company must be registered as a public company under the Companies Act 1956 or the Companies Act 2013. The issuer has net tangible assets during each of the previous three full years. The issuer has an average operating profit of the preceding three years, with operating profit in each of the preceding three years. The issuer has a net worth of at least 1 million in each of the preceding three full years, calculated on a restated and consolidated basis.
Entities not eligible for an IPO
If the issuer or one of its promoters or group of promoters is denied access to the capital market by the Stock Exchange Commission. Or if one of the promoters or directors of the issuer is a promoter or director of any other company banned by the SEC. If the issuer or one of its promoters or directors is a willful defaulter. If any of the promoters or directors of the issuer is a fugitive delinquent. Whether there are any convertible securities outstanding or any other right that would allow anyone with any option to receive equity shares of the issuer.
Some companies that are not ready to actually launch their own IPO can access the stock market through an acquisition. SPACs are special purpose acquisition companies that are traded on stock markets and are available to be bought off by others companies. The merger and acquisition deal provides access to the stock market in accelerate way.
IPO step-by-step guide
Step 1: Hiring an underwriter or an investment bank
To start the process, the company will first need one or more underwriters, investment banks. The subscribers insure the company on the capital raised and act as intermediaries between the company and its investors.
Step 2: IPO listing
This next step is to prepare the registration statement as well as the Red Herring Prospectus (RHP). The submission of the RHP is mandatory in accordance with the Companies Act.
Step 3: Verification by SEC
Then, after submission of the documents, SEC verifies the disclosure of the facts by the company. If the request is approved, the company can announce a date for its IPO.
Step 4: Apply for the stock market
The company must now file for stock exchange approval for its initial issue.
Step 5: Create a buzz in the market
Before an IPO opens to the public, the company works to create a buzz in the market about the IPO. Over a two-week period, the company will announce the impending IPO across the country. This movement will create awareness among the masses and thus create a demand for its actions.
Step 6: Pricing
The company will have to fix the price of each share either by IPO at a fixed price or by binding offer. In the case of a Fixed Price Offer, the price of the Company’s shares is announced in advance. While in Book Binding Offering, a 20% price range is announced, following which investors can place their bids within the maximum price cap. Accordingly, investors must place their bids at the lot price quoted by the company, which is the minimum number of shares to be purchased.
Step 7: Allocation of shares
Once the IPO price is finalized, the company and the underwriters decide on the number of shares to be allocated to each investor. In the event of oversubscription, partial allocations will be made. Shares are generally awarded within 7 days of auction.
An IPO is a great opportunity for companies to access the stock exchanges and extra capital. There are many rules and regulations surrounding the initial public offering process. If a company follows the proper steps to launch their IPO, it will access the wealth of investors through the stock exchange. For investors we prepared an article on IPO investment How to Invest in IPO – IPOday.com .