| When does a corporate organization feel pleased | | | | (6) Most companies/organizations/institutions |
| with itself? When it has managed to live up to its | | | | require the support of the public to continue in |
| promise of delivering high-quality goods as well as | | | | business, especially where funds are concerned. |
| services to the general public, generating | | | | Year after year, production and distribution may |
| significant revenue in the process! For instance, | | | | increase, new projects may be started, and so |
| where the trading community is concerned, any | | | | on. So the company/organization/institution offers |
| institution, organization or business house putting | | | | its common shares to the public as an initial sale. |
| forward an initial public offering, is doing a great | | | | Everyone is not expected to purchase those |
| service to them. | | | | common shares; only those investors who are |
| Maybe a comparison with a cookbook will serve | | | | interested will do so. |
| to explain things better. The cookbook (company) | | | | (7) In contrast to the initially offered shares, there |
| lists out all the ingredients needed for the recipe | | | | are common shares that are issued late. These |
| and then details the actual cooking process in a | | | | are known as a secondary market offering. |
| step-by-step manner. The person who collects all | | | | (8) Like everything else, the process of initial |
| the required ingredients (raw material) and puts | | | | public offering has to follow certain rules and |
| together a delicious meal (finished product), feels a | | | | regulations. These are decided by the U.S. |
| sense of accomplishment at having managed to | | | | Securities and Exchange Commission and the |
| satisfy even the most refined palate! The | | | | Federal Securities Act of 1993. If the common |
| appreciation (revenue) that follows will prompt the | | | | shares are offered by renowned stock |
| cook to prepare even more delectable meals in | | | | exchanges like NYSE and NASDAQ, they are not |
| future! | | | | affected by state laws. Common shares offered |
| We referred to something called "initial public | | | | by others are governed by state laws. |
| offering" in the very first paragraph (it is also | | | | (9) There are two steps involved in this process |
| called IPO). Well, some more details about the IPO | | | | of initial public offering-- |
| are presented below-- | | | | (a) Before actually offering the common shares |
| (1) Whenever some commodity is offered to the | | | | to the public, the issuer has to draft out a |
| entire public, there is always the fear that some | | | | prospectus. This means a document that relates |
| individuals or even groups can use it to their own | | | | details concerning the history of the organization, |
| advantage. This can bring a bad reputation to the | | | | its background, its current financial status, industry |
| organization involved. Hence, a process is always | | | | environment, what are the services and/or |
| set in motion to ensure that the IPO flows | | | | products it is offering, and so on. Approval for the |
| smoothly and is well protected. | | | | initial public offering is given only after the |
| (2) What exactly is a process? It is like an | | | | Securities and Exchange Commission goes through |
| ingredient, something that the organization cannot | | | | the prospectus and okays it. That is why major |
| do without. Therefore, the end-result of the | | | | law firms are hired by organizations whenever |
| commercial undertaking can only be "success". A | | | | such a draft has to be prepared. |
| process is very much a part of the finance, trade | | | | (b) In the second step, set prices are placed on |
| and business worlds. | | | | the common shares. As soon as the prices are |
| (3) A process starts out with collection of | | | | settled, the IPO is entered into a "free riding" |
| essential data (inputs) that is required. Then, it | | | | period. Some investment banks known as |
| proceeds to different methods that can be | | | | underwriters, are responsible for putting up these |
| adopted for these inputs. And finally, the outputs, | | | | common shares for sale. They can be offered in |
| or what results can be expected from this | | | | a variety of ways, but each one must be |
| proceedure. | | | | accompanied by a copy of the approved IPO |
| (4) Many times, a corporate organization may | | | | prospectus. |
| wish to serve the public, but is not exactly sure | | | | (10) There is strict prohibition on any false or |
| of how to go about it. With a process in place, it | | | | misleading statements coming out in public, during |
| is able to put together interrelated structural | | | | the period of sale. The company appoints some |
| activities that can prove valuable to its clients as | | | | executives to handle the initial public offering. So |
| well as its shareholders. Of course, the | | | | they are liable to face punishment if they make |
| organization itself benefits too! | | | | wrong statements in public or there are any |
| (5) A process is not something that is meant for | | | | omissions seen on the prospectus. |
| corporate organizations alone; it is useful for | | | | Should the underwriters come to know about |
| external affairs too, as their applications should be | | | | these misleading statements or omissions related |
| made available to the trading community | | | | to the initial public offering, and do not go ahead |
| everywhere. Like stated above, IPO can be taken | | | | with a proper investigation, they will also be taken |
| as an example. | | | | to task. |