An Initial Public Offering (IPO), also known as a flotation, is the process by which a company obtains a first listing of its securities on an investment exchange. This process converts a private company into a public company. During an IPO, a company can issue new shares for the public to buy and it can also represent an opportunity for shareholders, investors or founders to sell their existing shares.
General considerations when carrying out an IPO
When deciding on how to structure and plan for an IPO, the following factors need to be considered:
- The size of the company.
- The amount of capital the company wishes to raise.
- Whether any existing shareholders will want to sell their shares – A firm needs to understand if existing shareholders will retain or sell their shares once the IPO has taken place. Usually, shareholders will need to agree on a lock-up period after the IPO, where shareholders are not permitted to sell their shares for a certain time frame after the IPO to prevent the immediate overhang of stock.
- Whether a portion of the shares to be sold on the exchange market will be reserved for existing employees.
- The type of shareholders the firm is looking to attract.
- Understand the likely demand of investors who are likely to invest in the company.
- Place of listing – A firm can list its shares on the exchange market in different jurisdictions, although the primary listing is normally in the jurisdiction in which the company is incorporated.
Although the above list is not exhaustive when structing an IPO, it can nevertheless help determine the method of issuing shares, the type of offering and the size and timing of the IPO.
The process of an IPO
The exact rules and process of an IPO will depend on the market which you choose to go public.
Once a firm decides to become public by listing its shares on the stock exchange, the first stage is to conduct an audit into the firm’s financials and growth forecasts in readiness of going public.
The next stage is to appoint special advisors from the legal and the accounting and finance sector, who can help guide you through the process of getting ready for the IPO.
An investment bank will need to be appointed as underwriters. The investment bank manages the IPO process on the firm’s behalf, sets the IPO share price, allocates the shares between employees, institutional investors and retail investors, and assist with compliance of the market regulations.
The firm will then need to apply for listing on a stock exchange by preparing and filing a registration statement and create an IPO prospectus with the relevant exchange commission and exchange market for review. The prospectus contains detailed information about the company’s finances, operations, risks and future forecasts. In the UK, the relevant exchange commission would be the Financial Conduct Authority (FCA) and in the US this would be the Securities and Exchange Commission (SEC).
After the relevant exchange commission and exchange market approves the application, in the UK the firm will need to re-register as a public company on Companies House in order to start offering shares for public trading.
Monarch Solicitors specialist IPO solicitors provide a tailor-made approach to your needs and can assist with an IPO. Please get in touch with us by either calling 0330 127 8888 or emailing [email protected] for an initial consultation.
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