What is Initial Public Offer?

INITIAL PUBLIC OFFER : When a company makes public issue of shares for the
first time, it is called Initial Public Offer. The securities are sold through the issue of
prospectus to successful applicants on the basis of their demand. The company has
to appoint underwriters in order to guarantee the minimum subscription. An
underwriter is generally an investment banking company. The underwriter agrees to
pay the company a certain price and buy a minimum number of shares, if they are
not subscribed by the public. The underwriter charges some commission for this
work. He can sell these shares in the market afterwards and make profit. There may
be two or more underwriters in case of large issue.
The company has to issue a prospectus giving full information about the company
and the issue. It has to issue share application forms through the brokers and
underwriters.
The brokers collect orders from their clients and place orders with the company. The
company, then makes the allotment of shares with the help of stock exchange. The
share certificates are delivered to the investors or credited to their demat accounts
through the depository. This method saves time and avoids complicated procedure of
issue of shares.