Introduction

Initial Public Offering (IPO) allows a company to transform into a publically-traded entity from a privately-held organization. Generally, the purpose of an IPO is to raise capital and attain access to liquidity by offering shares to the public.

The need for an IPO process

Companies must follow an IPO process when they decide to raise money in exchange for securities. This is outlined by the stock exchanges of India - the National Stock Exchange and the Bombay Stock Exchange.

The Securities and Exchange Board of India (SEBI) regulates the IPO process. This helps to secure the investors’ interest and reduce the chances of scams.

The process of registering for an IPO requires adherence to different guidelines.      A private company is advised to use external expert advisors like underwriters, lawyers, auditors, and accountants to convert into a public company and tackle the anticipated challenges.

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How to register for an IPO?

The IPO registration process entails seven steps and takes four to six months to complete.

Step 1: Appointment of an underwriter or investment bank

Underwriters or investment banks initiate the IPO process on behalf of your company. These financial experts serve as intermediaries between the company and the investors.

Step 2: Registering with SEBI

The company must prepare a registration statement and a draft prospectus in this step. These documents are known as the Red Herring Prospectus (RHP). According to the Companies Act, all companies, regardless of their size and type, must submit the RHP.

Here are the vital components of the RHP:

• Definitions - This section explains industry-specific keywords and essential issues.
• Risk factors – This discloses the possibilities that can impact the company’s performance after listing.
• Use of proceeds - This is the most important section of the prospectus. It informs potential investors about the utilisation of the raised money.
• Industry description - Here, the focus is on the industry's performance to which the company belongs. For example, if your company operates in the fashion industry, this segment will provide forecasts and predictions of the fashion industry.
• Business description – The section outlines the company’s core business activities and how the company will earn profits.
• Management - Information about the directors, promoters, and key management personnel is covered in this section.
• Financial information - This section comprises the financial statements and the company’s auditor’s reports for the past five years.
• Legal and other information – This segment contains information about the litigations against the director, promoter, or company. Any other miscellaneous information is also included here.

Step 3: Verification by SEBI

After you submit the documents, SEBI verifies the information disclosed and provides its comments within 60 days. You must resolve any concerns SEBI raises and file a revised RHP if needed.

If there are no queries, SEBI will approve the application, which means you can announce an IPO launch date.

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Step 4: Applying to the stock exchange

Next, the company must apply to the stock exchange where it wants to float its initial release.

Step 5: Launching the IPO

This step focuses on advertising the impending IPO to potential investors across the country for a period of two weeks. The company’s key highlights are shared among business analysts and fund managers. The top executives engage in group meetings, Question and Answer (Q&A) sessions, online virtual roadshows, multimedia presentations, and other user-friendly measures.

Step 6: Pricing the IPO

The lead merchant banker must fix the price of shares through fixed or book-binding offers. The former strategy announces the price of the company’s stocks, while the latter gives a price range of 20%.

Step 7: Allotment of shares

After finalizing the IPO price, the underwriters determine the number of shares available for allotment to each investor.

Conclusion

IPOs help companies raise business capital. They also allow existing shareholders to cash out their investments. IPO requirements vary as per the type and size of the company going public. But filing an offer document with SEBI is mandatory for all companies. This document holds the company’s financial records and other vital information. The IPO process is often complicated and lengthy. Thus, it is advisable to hire experienced professionals and ensure everything is done rightly.

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