The full name of IPO is initial public offering. If a company sells its shares publicly to the public for the first time. Those company brings an ipo to the public. If a company wants to get listed in the stock market or wants to make money from the public through the stock market. That company has to bring its IPO.
There may be many reasons for taking an IPO, it depends on the company for which it intends to take the IPO. Some companies bring IPO to grow their business. When the company comes to the market with its IPO. It has to tell what it will use the money raised from the public through the IPO, for which the company makes public all the things of the company before bringing its IPO.
Suppose there is a company that is not yet in the stock market. And its capital is 10 crores. And now if the company wants to increase its capital to 20 crores, then the company will bring an IPO of 10 crores. This means that after the IPO, the promoter will have 10 crore shares in the company and the public will have 10 crore shares in that company. For example, suppose a company has a capital of Rs 10 crore.
And all the shares are with the promoter, or the company has taken these 10 crore loans from any bank. Now the promoter wants to reduce its stake to 50% or the company wants to reduce the loan taken by the bank by 50%. If done, the company can do this through an IPO. It is to be noted that in the first instance 10 crores will go to the company and the capital of that company will increase from 10 crores to 20 crores.
And in another example, Rs. 5 crores will go to the promoter of the company or go to the bank from which the company took a loan. In this condiion, the capital of the company will remain 10 crores even after the IPO. The company issues its IPO with the help of investment banks. After the issue of the IPO, the company’s shares are traded on the open market. Those shares can be bought and sold by investors through the secondary market or through the stock market.
When the company issuing the IPO brings its ipo to the stock market, before that the company issues a prospectus of its company. This prospectus should be read carefully before investing. In the prospectus, the company gives all the information about the IPO. By reading this, you can understand where the company will use the capital taken by the IPO. After this, you can guess whether the company will be able to give better returns than the registers collected by the IPO. So, friends, this is IPO.
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