An initial public offering (IPO) is the process through which a company offers shares to public investors and seeks admission to a stock exchange. An IPO may include a fresh issue of shares, an offer for sale by existing shareholders, or a combination of both. These components have different implications for the company and selling shareholders.
Fresh issue of shares
In a fresh issue, the company creates and offers new shares. The proceeds, after applicable costs, are received by the company and may be used for stated purposes such as capital expenditure, debt repayment, working capital or general corporate needs. The offer document explains the proposed use of proceeds.
Offer for sale,In an offer for sale, existing shareholders sell some of their shares to public investors. The sale proceeds generally go to the selling shareholders rather than the company. An offer for sale can provide liquidity to existing holders without raising new capital for the business.
Why dilution matters
A fresh issue increases the number of shares outstanding, which can dilute existing shareholders’ percentage ownership if they do not participate. The effect on per-share measures depends on the amount raised, the use of proceeds and the company’s future performance.
Read the offer documents,The draft red herring prospectus and final prospectus describe the business, risks, financial statements, use of proceeds, promoter holdings and offer structure. Investors should read the risk factors and audited information rather than relying solely on headlines or informal commentary.
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