initial public offering(IPO)

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Initial Public Offering refers to the process of selling a company 's shares for the first time to the public . Companies usually sell common shares in an attempt of getting capital to strengthen or improve its capital structure

A distinction should always be made between selling of a company 's shares for the first time ever to the public and the selling of shares by a person who had already invested . The Initial Public Offering means that a private company has the intention

of converting to a public company . Companies usually convert from private to public so as to enjoy the following benefits : - (i ) After a company has gone public it creates an extra step in the process of capital sourcing . This is evidenced by the fact on entering the stock markets , the motive is purely capital rising (ii ) The prices of a company 's shares usually rises hence the value of the company increases

The company usually becomes attractive to employees since its value rises and also free shares can be issued to the employees as a motivator (Yakov , Shmuel Kirsh , 2003

The company becomes better placed incase it intends to enter into a merger since it would use its shares to seal the deal

The company can easily acquire other entities using its shares once shares traded in stock markets are recognized in such transactions

Prospectus

A company intending to raise capital through the stock market should always issue a prospectus . This is a document which gives information on the company intending to carry out an initial public offering . The prospectus is usually a document that every investor should get interested in to know the companies on initial public offering (Raymond and Fishe , 2002 . The prospectus usually gives details on the following matters concerning the companies

The number of authorized shares -Companies usually don not issue all the authorized shares . The portion that is let to the public is referred to as issued shares . A prospectus during an initial public offering gives the details of the issued shares

Number of shares issued to locals and the number issued to outside the resident country

The market in which the shares are to be listed . The prospectors explain where the shares are to be listed . It also gives the symbol of the company shares in the market . An example of such markets is the New York stock exchange

Price of the company shares-The prospectus clearly shows the price of the shares of a company engaging in the initial public offering . The prospectus goes a step further in explaining the method of pricing

The minimum amount of shares for application- the prospectus issued by a company always give the number of shares to be invested in below which it is not acceptable

The type of shares accompany is in the process of issuing-The prospectus gives details of the type of shares . This part of the prospectus states whether the shares are ordinary or preference , whether...