Vivek Investment > English > IPO RELATED INFORMATION

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. 

Market Design: 

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. 

Eligibility Norms:

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- 

  1. It has a pre-issue net worth of not less than 1crore in 3 out of the preceding 5years and has minimum net worth in immediately preceding two years. 
  2. It has a track record of distributable profits in terms of section 205 of the companies Act, 1956 for at least 3 out of immediately preceding 5 years. 
  3. The issue size (offer through offer document + firm allotment + promoters contribution through the offer document) does not exceed five times its pre-issue net worth. A listed company is eligible to make a public issue, on fixed basis or on book building basis if the issue size does not exceed five times its pre-issue net worth. 

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: 

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. 

  1. Accept call money. 
  2. Accept application forms duly filled by the applicant with necessary payments. 
  3. The applicant who did not get allotment or part allotment can get refund of payment. 
  4. Dividend payment. 
  5. The company who takes services from nominated schedule bank has to take permission from SEBI. 

Registrar to Issue: 

This normally handles following jobs on behalf of the company: 

  1. Keep accounts of application and application money. 
  2. To update book building process and preparation of allotment list. 
  3. To forward letters to the allotment holders. 

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.

  1. Institutional Buyers,
  2. Large Investors
  3. Retail investors. 

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. 

  1. How to the management who are promoters when did company start or when is going to start. 
  2. Company’s project, land machinery, availability of raw material arrangement of sales etc.
  3. Company’s total equity which they want to rise, how much is the investment of promoters, financially institution and public. 
  4. Whether company has any Technical collaboration imported machinery, foreign technical know how etc. 
  5. Any Government relief from income tax, sales tax, excise duty, etc. 
  6. Sales arrangement and demand of product locally and abroad.

If above point are carefully studied then there won’t be any regret after application. 

For more information on stock market investing you can call me on Whatsapp and call the number below.

No. 9664337836.

Thank You.

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