General Info

IPO(Initial Public Offerings) Process and Requirements

Posted on by admin

The Initial Public Offering (IPO) process is a way for a private company to raise capital by offering shares to the public for the first time. Here’s a detailed breakdown of the IPO process and its requirements, typically in the context of markets like the U.S. (SEC) or India (SEBI), though the basic structure is similar globally.

🏢 What is an IPO?

An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time and becomes a publicly traded company. It is a key milestone in a company’s growth.

✅ Pre-IPO Requirements

  1. Eligibility Criteria (varies by country):

    • Net worth and profitability thresholds.

    • Minimum number of years in operation (typically 3 years).

    • Clean legal and financial record.

    • Corporate governance and board structure requirements.

  2. Corporate Structuring:

    • Convert into a public limited company.

    • Comply with regulatory norms (e.g., SEBI in India, SEC in the U.S.).

  3. Hire Intermediaries:

    • Merchant Banker (Book Running Lead Manager – BRLM).

    • Legal Advisors.

    • Auditors.

    • Underwriters.

    • Registrar to the Issue.

    • Public Relations / Marketing firm.

🧾 IPO Process: Step-by-Step

1. Due Diligence & Preparation

  • Financial, legal, tax, and operational audits.

  • Set up internal controls and compliance processes.

  • Draft DRHP (Draft Red Herring Prospectus).

2. Filing with Regulatory Authorities

  • File DRHP with the regulator (e.g., SEBI/SEC).

  • Regulator reviews and may request clarifications.

  • Post-approval, publish RHP (Red Herring Prospectus) with final details.

3. Valuation & Price Band

  • Decide the price band or fixed price.

  • Determine the number of shares and total capital to be raised.

4. Marketing (Roadshows)

  • Meet with institutional investors.

  • Present business model, growth plans, and financials.

  • Generate investor interest (book building process).

5. IPO Launch

  • Open for subscription (typically 3-5 days).

  • Investors apply via ASBA (in India), brokers, or banks.

  • Oversubscription or under-subscription is tracked.

6. Allotment & Listing

  • Shares are allotted based on demand.

  • Excess funds are refunded.

  • Shares are listed on stock exchanges (e.g., NSE/BSE/NYSE).

📋 Key Documents Required

  1. Draft Red Herring Prospectus (DRHP)

  2. Red Herring Prospectus (RHP)

  3. Audited Financial Statements (last 3 years)

  4. Legal Due Diligence Report

  5. Board Resolutions and Corporate Documents

  6. Material Contracts

  7. Underwriting Agreement

  8. Compliance Certificates

💡 Post-IPO Compliance

  • Regular quarterly/annual financial reporting.

  • Corporate governance norms.

  • Insider trading regulations.

  • Disclosure of material events (SEBI LODR / SEC filings).

📊 Common IPO Objectives

  • Raise capital for growth or debt repayment.

  • Increase brand visibility.

  • Provide exit route for early investors.

  • Improve liquidity and market value.