When one apply for IPO one must know how the process of IPO takes place. Below is the necessary information for the participants applying for IPO .
Board of Directors:-
The composition of the Board of Directors is particularly critical for an IPO. Typically a board is composed of inside and outside directors. Inside directors could be management, significant shareholders, venture capitalists, vendors and relatives. Outside directors have no underlying financial or personal relationship with the company that could create a conflict of interest and are on the board for their experience, business judgment and contacts. Outside directors may own stock but are not large shareholders. Investors should look for a board that has a majority of outside directors. Typically IPOs add their first outside directors at or immediately after the offering.
The market design for primary market is provided in the provision of the Companies Act, 1956 which deals with issues, listing and allotment of securities. In addition DIP guidelines of SEBI prescribe a series of disclosures norms to be complied about by issuer, promoters, management, project, risk factors and eligibility norms for accessing the market.
A company making a public issue of securities has to file a draft prospectus with SEBI through an eligible merchant banker at least 21 days prior to the filling of prospectus with the Registrar of Companies (ROC’s).
An unlisted company can make public issue of equity shares or any other security convertible into equity shares on fixed prices basis or on book building basis provides-
Contribution of Promoters:
The promoter’s contribution in case of public issues by unlisted companies and promoters shareholding in case of offers for sale should not be less than 20% of the post issue capital.
Lock – In Period:
For any issue of capital to the public the minimum promoter’s contribution is locked in for a period of 3years. If the promoter’s contribution exceeds the required minimum contribution such excess id locked in for a period of one year. Securities allotment on firm allotment basis are also locked in for a period of one year.
Book building is a process of offering securities in which bids at various prices from investors through syndicate members are collected. Based on bids demand for the security is assessed and its price discovered. In case of normal public issue the price is known in advance to investor and the demand is known at the close of the issue.
Bankers to Issue:
For collection for IPO application with payment is handled by scheduled bank and preforms the following tasks.
Registrar to Issue:
This normally handles following jobs on behalf of the company:
Lead Merchant Banker:
The lead merchant bankers plays an important role in the pre-issue obligations of the company. He exercises due diligence and satisfies himself about all aspects of offering, veracity and adequacy of disclosures in the offer document. Each company issuing securities has to enter into a Memorandum of Understanding with the lead merchant banker responsible for underwriting arrangements and has to invoke underwriting obligations and ensure that the underwriters pay the amount of devolvement. It should ensure the minimum number of collection centers. It should also ensure that the issuer company has entered into an agreement with all the depositories for dematerialization of securities. If the issue is underwritten by any institution then they are obliged to buy the under applied quantity of shares at a predetermined price.
How to Apply for IPO:
When you think to enter stock market you can even begin with I.P.O and for that the first step is to have Demat account opened. Having demat account opened you can apply for IPO.
I.P.O are generally given nation wide publicity through T.V Media, News Paper, Hoardings, Magazines etc before the opening of their issues.
I.P.O application from can be collected from brokers and the bankers to the issues. All the details related to the price where to submit the application etc. are given in the application forms. When the IPO is issued through the book building process. Reservation are made.
Retail investors is who can apply up to maximum limit rs 100000 worth of shares.
Points to be checked before Investment in IPO:
When you apply for IPO please go through following points very carefully. If the company is not good and at the time of listing the market is weak then we are in trouble. But if the company is strong it will definitely bounce back as soon as the market improves.
If above point are carefully studied then there won’t be any regret after application.
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