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Initial Public Offering (IPO)

An initial public offering (IPO) is the process of issuing shares of a private firm to the public in a fresh stock issuance. An IPO allows a firm to raise funds from the general public. Converting a private firm to a public company often involves a share premium for current private investors, which can be a crucial opportunity for them to realise the rewards from their investment. Meanwhile, public investors are allowed to participate in the offering.

How Does an Initial Public Offering Work?

Going public is a complex, time-consuming process that most businesses find difficult to handle on their own. A private firm seeking an IPO must not only prepare for a massive increase in public scrutiny but also file a mountain of paperwork and financial reports to satisfy the Accounting and Corporate Regulatory Authority (ACRA), which regulates public corporations.  Before making the public offering, they also need to make a prospectus and register it with the Monetary Authority of Singapore (MAS)

That’s why a private firm planning to go public engages an underwriter and an investment bank to advise them on the IPO and assist them in setting an initial price. In addition, underwriters assist management in preparing for an IPO by generating important investor papers and conducting roadshows with potential investors.

What is the Purpose of an Initial Public Offering (IPO)?

Although an initial public offering (IPO) is the first time the general public may acquire shares in a company, it’s crucial to remember that one of the aims of an IPO is to allow early investors in the firm to cash out their assets.

Consider an IPO to represent the conclusion of one stage in a company’s life cycle and the commencement of another; many of the initial investors want to cash out on a new venture or start-up. Investors in more established private firms that are going public, on the other hand, may prefer the option to sell part or all of their shares.

The motivations for a corporation to pursue an IPO include obtaining finance and increasing its public profile. Others include:

  • Companies can raise money by selling stock to the general public. The funds can be used to grow the company, support research and development, or pay off debt.
  • Other capital-raising options might be too expensive, such as venture capitalists, private investors, or bank loans.
  • Going public via an initial public offering (IPO) may provide a company with a lot of exposure.
  • Companies may desire the status and gravity of being a publicly-traded firm, which may help them achieve better lending conditions.

While becoming public may make it simpler or less expensive for a firm to raise funds, it also complicates many other issues. For example, there are standards for transparency, such as filing quarterly and annual financial reports. They must answer to shareholders, and there are reporting requirements for stock trading by top executives and other actions like asset sales or acquisitions.