What is IPO?

An Initial public offering (IPO) is the first batch of stocks issued by a company to the public in order to raise capital for its business. The public consists of any individual or institutional investor who is interested in buying the shares of this company and wasn’t involved in the early days of the company. To become a public listed company, a company has to sell a certain portion of their shares to the public to be traded on a stock exchange (Bursa Malaysia). This is why an IPO is also referred to as “going public”.

The purpose of IPO

There are various ways for a company to raise capital for growing and expanding its business. IPO is one of the alternatives for a company to raise substantial amount of fund without borrowing loans from the bank which increases the liabilities of the company.

Advantages of IPO

• Provides the company a lower cost of capital
• Raises the largest amount of money for the company as compared to other options
• Increase the company’s exposure to public and reputation which can boost the sales and profits
• Better Management and skillful employees can be attracted through liquid equity acquisitions (i.e. ESOPs)
• Higher diversity of investors to raise the capital
• Encourage and reward loyal and committed employees via an employee equity scheme

Disadvantages of IPO

• Loss of control over the company, as shareholders have rights to interfere in its business direction and decision
• Disclosure of financial statement and other business information is required
• Remarkable legal, accounting and marketing costs
• The presence of risk if the issuance of IPO fails due to low demand by public
• Greater effort is needed for reporting

What is the requirement for issuing an IPO?

In the next blog post, we will be discussing on the requirements that a company has to fulfill for issuing an IPO. Please visit MQ Trader – The requirement for issuing IPO (Part 1) to continue reading.

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Disclaimer

This article does not represent a BUY or SELL recommendation on the stock covered. Traders and Investors are encouraged to do their own analysis on stocks instead of blindly following any Trading calls raised by various parties in the Internet. We may or may not hold position in the stock covered, or initiate new position in the stock within the next 7 days.

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