What is IPO? Why do businesses need to do IPO? This article will share with you all the knowledge related to this IPO activity.
What is IPO?
What does IPO stand for? IPO stands for “Initial Public Offering”. This is the term used to describe the process by which a company raises capital from the public for the first time by issuing shares or listing its shares on the stock exchange. reputable stock exchanges.
The public in this context is understood as a group of investors large enough with a large enough value of securities offered. After the initial public offering, the company will become a public company or a public joint stock company.
What is the purpose of an IPO?
After research What does IPO mean?Next, let's find out the purpose of implementing an IPO. Depending on the operating strategy, businesses implement IPOs with the following specific goals:
Capital raising
The main purpose of an IPO is to raise capital from the public. Compared to only having major shareholders, an IPO helps businesses raise a much larger amount of capital. In particular, this source of capital is not debt but equity, helping to reduce the pressure of paying interest on loans for businesses.
Improve operational efficiency
When participating in the stock market, businesses need to provide transparent and standardized financial information and reports. This forces businesses to improve their management capacity and increase production efficiency to optimize profits. Before IPO, businesses must also meet strict financial requirements and comply with regulations from the securities depository center, laws and investors. Thanks to that, investors can own shares at low prices and minimize risks.
Increase property value
When an IPO is successful, the value of the company will be re-evaluated and increased significantly, based on market value, not just book value. If the company has a good operating foundation, the IPO will attract many investors, helping the stock price grow strongly in both the short and long term.
Brand promotion
Purpose of What is IPO stock?? IPO helps businesses increase their reputation and brand value on the financial market, as well as differentiate themselves from other companies in the same industry. This is a great competitive advantage, supporting revenue growth for businesses.
Building corporate culture
Standardizing operating procedures, cultural environment and welfare regimes in the enterprise will be significantly improved. This attracts talented employees and helps them stay with the company's development for a long time. For enterprises with ESOP bonus regime, employees will be more motivated to contribute because both the enterprise and the employees benefit.
Platform for mergers and acquisitions
The ultimate goal of What is IPO?? It is to facilitate future mergers and acquisitions. Large companies can buy small or inefficient companies, restructure them and add overall value to the parent company.
What are the points to note when IPO in stocks?
With many purposes and meanings, IPO is an important step for businesses in the process of business and production. However, it also brings a lot of pressure to businesses. Below are some points to note: HVA has summarized that businesses need to pay attention to:
Strict management requirements
When conducting an IPO, a company must comply with many legal regulations, including ensuring that at least 1/3 of its members are independent, and that the election, dismissal and replacement of members must be closely monitored. The entire operating process and financial reports will also be examined in detail. Therefore, this is a great pressure for the company right after a successful IPO.
Control of operating rights
Compared to unlisted enterprises, companies conducting IPOs will be subject to the supervision of the State Securities Commission for activities such as shareholders' meetings, increases and decreases in charter capital, etc. In addition, all information about the enterprise will have to be periodically reported to the public and the enterprise must also fulfill other financial obligations to state agencies.
Not suitable for small companies
An IPO is not the solution for all businesses. For small companies without a clear development strategy, an IPO can create more pressure on management than it can bring.
What are the conditions for an IPO business?
Currently, the requirements for businesses when conducting IPO are as follows:
- Charter capital of at least 30 billion VND at the time of IPO registration, calculated according to accounting book value.
- Business results in the last two years must show growth and no cumulative losses. At the same time, the enterprise must not be subject to criminal prosecution or violate legal regulations.
- The operating plan must be prepared in detail, clearly explaining how the capital will be used after the share offering and having the approval of existing shareholders.
- The voting shares must be distributed to at least 100 investors, accounting for 15% of the total issued shares, and these shareholders must not be major shareholders. This ratio can be reduced to 10% for enterprises with charter capital of over VND1,000 billion.
- The largest shareholder of the enterprise commits to hold at least 20% of charter capital within 1 year from the date of completion of the IPO.
- Enterprises also need to meet the requirements for IPO consulting units, blocked accounts to receive mobilized funds and commitments to operate on the exchange.
IPO Process for Business
When all necessary conditions are met, the enterprise will proceed. IPO process through the following steps:
- Work with consultants, auditors and underwriters (if required) to develop the necessary plans.
- Proper stock valuation is an extremely important step. The stock price should not be too high because it will be difficult to attract investors, but it should not be too low because it will not reflect the true value of the business and will not raise enough capital.
- Reach consensus with shareholders on the IPO plan, including the purpose of capital mobilization, capital usage plan, securities issuance method, offering subjects, etc.
- Prepare important documents such as IPO registration certificate, company report, shareholders' meeting decisions, charter, contract with consulting unit and commitment documents as prescribed.
- Submit the application to the State Securities Commission and then wait for the verification and confirmation documents.
- If approved, the company will release the information to the public through the media.
- After the IPO, the enterprise will register for storage, transfer and payment at the Vietnam Securities Depository (VSD) and the State Securities Commission. The enterprise also needs to report the capital mobilization results to the competent authorities.
With sharing about What is IPO?, businesses can successfully conduct IPOs, increase capital and ensure sustainable development. Please continue to follow articles from HVA to improve investment knowledge stock.
