How does a company get listed on the stock exchange?
A private company can only become public by listing itself on the stock exchange and selling a part of its stake to investors. This is done through IPO – Initial Public Offering. Through IPO, a company intends to infuse fresh equity capital, make the trading of existing assets easy and raise capital for future prospects.
Once an IPO gets completed, the shares of the company can then get freely traded in the open market. The company issues a prospectus which is eventually a document specifying in detail about the proposed offerings.
Anyone including public, institutional investors, high net worth individuals can have access to that prospectus to make a better and informed decision before investing.
Types of IPO
- Fixed Price offering
Under this, the company sets the initial price during the sale of shares. Once the issue gets closed, people get to know about the demand of the stock. Also under this, while applying for the IPO, the investors has to pay the full issue price.
- Book Building Offering
Under this the company offers a 20% price band on the stocks. The investors are given the option to bid by specifying the number of shares they wish to buy and the price they are willing to pay. The ultimate final price gets decided after the bidding. The lowest and highest bid share price are known as floor price and cap price respectively.