What is an IPO listing and what happens once the IPO is listed in secondary market?

An initial public offering (IPO) is the process of selling shares of a private company to the public in the form of a new stock issuance. This is called IPO listing. IPOs Listed in Secondary Market need to be taken care of. An IPO allows a company to raise funds from the public. This is an excellent approach for businesses to raise funds. It is also a profitable option for such a company’s shareholders to get the most bang for their buck.

What is an IPO listing and what happens once the IPO is listed in secondary market?

To begin the process of IPO listing, the firm that seeks to go public must first undergo three fundamental transformations:

  • The decision-makers / founding members must accept that their company is going public.
  • The company must hire fresh muscle to handle policy/framework restructuring
  • Intensified marketing is required to offer the first shares a good boost.

When all internal processes have been completed, the external actions can commence. This includes determining eligibility based on the selected exchange’s IPO criteria, learning about application processes and fee structures, and becoming familiar with SEBI standards, rules, and regulations for going public. Issuing stock for the first time is a difficult process that requires time to complete successfully.

Affects of IPO on Company

Going public has advantages for a company, the most significant of which is that a significant amount of capital can be raised from the issued shares. Another significant benefit of going public is that the company gains exposure to a larger consumer base because of its increased marketing efforts to ensure the success of the IPO issuance. The direct outcome of IPO marketing is an increase in a company’s market shares.

With that said, there are a few disadvantages to going public via IPO that might have a negative influence on a firm. The following disadvantages of listing an IPO are listed below:

  • The first drawback is the cost of ensuring compliance with the regulations. Fee structures, audits, investor relations, and compliance overhauls, particularly in the case of smaller enterprises, may end up costing them dearly.
  • The second disadvantage is that regulatory bodies have mandated disclosure requirements. Many corporations may not wish to make their investment information public; this may diminish the brand’s reputation.

To eventually have a company listed on a stock exchange, an IPO requires a lengthy process — it isn’t exactly a walk in the park. This is the main reason why going public is a serious decision.


You may also read about: What is Grey Market impact on IPO?


What is an IPO listing?

When a company wishes to go public, there is a lengthy internal and external process that must be followed before the IPO listing can take place. While internal procedures focus on restructuring and marketing, external processes include determining eligibility, applying for IPOs, and handling costs.

IPO Listing as per SEBI

SEBI establishes the eligibility standards for companies that want to go public. A firm going public must meet the following conditions to be eligible for IPOs.

Paid-Up Equity Capital

  1. It should be more than ten crores.
  2. The equity capitalization should be larger than 25 crores.

Conditions of Listing

The antecedent conditions that the issuing business must meet before launching its IPO are as follows:

  1. Securities Contracts (Regulations) Act of 1956
  2. Companies Act of 1956 / 2013
  3. Securities and Exchange Board of India Act of 1992
  4. Any mandates issued by relevant authorities

Record of Achievement

The issuing company must demonstrate a three-year track record in any of the following areas:

  1. The applicant who has applied for the IPO listing
  2. The track record of the promoter or promotional company, whether based in India or elsewhere.
  3. Partnership firm that has been converted. The future firm formed will be governed by the SEB regulations.

Mechanisms

If a corporation wants to be listed, it must meet the following criteria:

  1. A redressal process that clarifies the details of pending investor complaints against the issuing firm, subsidiaries, and the top five group companies listed by market capitalization.
  2. A mechanism for resolving investor complaints has been designed.

What happens post IPO listing?

Several things happen when a firm decides to go public.

  • The company is restructured from a private to a public organisation
  • The stock of that company is issued for the first time in the primary market
  • The company may participate in early price discovery to put the right market value on its securities
  • When the company is listed and stock is made available in the secondary market, the shares are ready to be traded between stock exchanges and investors

Conclusion

The choice to pursue an IPO listing is a significant one for a company’s founding members. Raising capital by a firm is either a calculated strategy or a desperate effort. In any case, IPOs provide a firm with the opportunity to enter the market and assess its own worth in terms of public opinion.

SEBI specifies the conditions that a firm must meet to go public. In addition, a regulatory compliance and grievance mechanism must be in place.