A privately-owned company has the option to transform into a publicly-traded company by undergoing an Initial Public Offering (IPO) procedure. This entails issuing stocks or shares to the public, generating capital, and obtaining access to liquidity. In India, businesses must adhere to the IPO process established by stock exchanges to qualify their shares for public trading, which can be a complicated and lengthy process.

An Initial Public Offering (IPO) technique can be used to transform a corporation from a privately held to a publicly listed one. Initial public offerings (IPOs) are frequently conducted by businesses in order to raise capital and acquire access to the market’s liquidity. In order for their shares to be eligible for public trading, Indian companies must adhere to the IPO procedure, which is usually challenging and time-consuming.


Step 1: Work with an investment bank or underwriter

The company will enlist financial professionals, such as investment banks as underwriters, to start the IPO process. The underwriters serve as a middleman between the firm and its investors and provide the company with assurances on the capital to be raised. Additionally, the experts will sign an underwriting agreement and analyse the important financial aspects of the business. The following elements are frequently included in the underwriting agreement-Information on the offering, the amount to be raised, and the securities that will be issued.

Step 2: Registering with the IPO

A registration statement and a draught prospectus, commonly referred to as a red herring prospectus (RHP), are prepared during this stage of the initial public offering (IPO). The Companies Act requires the production of the RHP since it comprises all the disclosures required by SEBI and the Act. The following essential elements are often included in the RHP-

• Definitions: This section explains words specific to the industry.

• Risk Factors: In this part, the risks that could affect the company’s finances are disclosed.

• Use of Proceeds: In this section, it is explained what will be done with the money that was received from investors.

The company’s operations in the pertinent industry segment are described in detail in the business description section. For instance, if the business is in the IT sector, this component will offer industry forecasts and predictions.

Financial statements and an auditor’s report are included in the registration statement’s financial description section during the IPO process. The legal and other information section also contains general information and specifics regarding any legal matters in which the business is involved. Three days prior to the public offer’s opening for bids, this document must be delivered to the Registrar of Companies and must adhere to SEBI regulations. The company may then submit an IPO application to SEBI.

Step 3– SEBI Authentication

The Securities and Exchange Board of India (SEBI) confirms the accuracy and comprehensiveness of the information supplied by the company after the company submits its registration statement and draught prospectus to the Registrar of Companies. If more information or clarifications are required, SEBI may ask the company for them. The company can then proceed to announce a date for its IPO if SEBI grants the application.

Step-4 The application to Stock the Exchange-

Following SEBI’s approval of the registration statement, the company must submit an application to the stock exchange in order to list and trade its shares. Details including the number of shares to be listed, the kind of securities, the price range, and other pertinent information are included in the application to the stock exchange. The stock market may examine the application and, if necessary, ask for more details. The stock exchange must first approve the application before the company may move forward with pricing and share distribution.

Step 5: Pricing of IPO

The demand created during the bidding process is used to calculate the cut-off price and it is the price at which all successful bidders will get the shares. The Shares are allocated based on the price that investors bid, with those who bid at or over the Cut-Off price receiving the most shares.Once the allotment is complete, the company lists its shares on the stock exchange, and the shares start trading publicly.

Step 6: Allotment of Shares

In case of oversubscription, where the demand for the shares exceeds the number of shares available, the allotment is done on a proportionate basis. This means that every investor will be allotted shares in proportion to the number of shares they applied for. For example, if the IPO is oversubscribed by 2 times and an investor applied for 100 shares, they may be allotted only 50 shares. The remaining amount will be refunded to the investor within a few days after the allotment.

Before the IPO process is finished, a company may take into account a number of additional factors, including-

It’s important for companies to prevent insider trading during the IPO process to maintain fairness and prevent any potential conflicts of interest. Insider trading can create an unfair advantage for those who have access to non-public information, which can lead to price manipulation and losses for other investors. By prohibiting insiders from participating in the IPO process, the company can ensure a level playing field for all investors and maintain market stability.


In addition to selecting a reliable financial partner, an investor should also conduct thorough research on the company going public. This includes analyzing the company’s financials, its management team, its competitive landscape, and the industry trends. It is important to evaluate the company’s growth potential, its long-term prospects, and the risks associated with investing in its stock.

Investors should also carefully read the IPO prospectus, including the financial statements and risk factors section. They should understand the company’s business model, its revenue streams, and its market position. It is also recommended to attend investor roadshows and listen to management presentations to get a better understanding of the company.

Lastly, investors should have a clear investment strategy and know their risk tolerance level before investing in an IPO. It is important to diversify their portfolio and not allocate a significant portion of their funds to any one stock, especially one that has recently gone public.








Quick Navigation