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Initial Public Offering of Shares to 20,000 Investors—Looking at IPO the “Real Way”
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Supposedly you have assumed the highest post of a certain corporate organization and at that time the corporation is now planning to incorporate new products that will be sold under its brand name and expand the business operation from regional to national coverage. Since you are now the corporate head executive, you need to do something to sustain new corporate plans under your administration.
The board of directors suggested two possible options to sustain new corporate plans. Since the corporation now generates profit due to successful business growth, you can use such profit to secure a corporate loan. The funds incorporated in the loan will be used in sustaining the plans for inclusion of additional products that will be offered to the public and possible expansion of your business operation. The corporation has the sufficient assets that can be used as a collateral or guarantee in case the loan will falter later on.
The next option that the board suggest may is the corporation going public, or to undergo the IPO or the initial public offering process. It refers to the first sale of the corporation’s common shares to interested public investors. The revenues that will be generated through IPO can be used to sustain new corporate plans without losing the essential assets of the corporation.
As the head executive, which of the two options will you choose? Are you willing to sacrifice the corporation’s asset by making it as the collateral for the loan? Although it will be a good idea (especially if the corporation follows the limited liability concept) to secure a corporate loan, it is not a good idea to lose the assets that the corporation have. Add to it the inconvenience of high interest rate applied to monthly repayments which can affect the performance of the corporation in terms of profit generation.
On the other hand, if you will choose to go on public, the chances of selling all your common shares is high because the process itself guarantees that the underwriters involved can attract potential investors. Though it may cost you more, the generated revenue will be guaranteed and the assets of the corporation will be protected as well.
Let us again put you in a situation wherein your corporation offers 15 percent off the prices of the common shares under IPO to about 20,000 investors and they are limited to receive 100 shares, what will happen? Will such price slash on the common share create damage to the corporation itself?
Before getting into IPO, you must be first knowledgeable of the laws that govern the process. Under the Federal Securities Act of 1993, a company or corporate entity with around 20,000 investors cannot have an IPO. Keep in mind that it is an initial public offering, but if a company has more than 300 investors, the issuance of common shares must be done in public, therefore it will not fall under the “initial” category anymore.
Another thing is that the number of shares being purchased or sold is completely irrelevant. For instance, a share of a certain company falls at about $90,000 yet the value of a share of many “stocks” trade is at $0.01. Thus, the value of 2 million shares will depend on several factors like if there are a total of 2,000,000 or 200,000,000 shares issued.
Whether 20 investors or 200 shares or even 200 million shares, understanding the laws governing IPO will help you see the process in the “real way”.
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