What is an IPO? types of IPOs.
General information about the IPO and its types.
IPO stands for initial public offerings. When a company conducts business privately with its own funds, it has very limited resources and finances, so it launches an IPO in the market. There are two types of initial public offerings: "SME (small and medium enterprises) and “Mainline IPOs.”
Let us see an example: -
There was a businessman called Jethalal. He runs an electronic company called “Gada Electronics.” He has enough funds to run the business but wants more funds to open a new branch in another city and he is not comfortable with taking on debt So he issues the IPO Now it depends on the business of the company, whether it is small or large. He can issue the “SME” as he runs a small company.
"SME IPOs”
As we know, after COVID-19, the number of retail investors has increased. And the new investor comes for instant money, so they might end up trading or investing in IPOs. This type of IPO is issued by small and medium enterprises, as they are small and have more risk associated with it, so for these reasons, it is not appropriate for retail investors. It is listed on BSE and NSE both.
The criteria for “SME IPOS”
The company’s paid-up capital post-issue should be less than Rs. 25 crore.
The net tangible assets of the company should not exceed more than 1.5 crores.
The minimum public shareholding post-issue must be at least 25%.
The SME must have its own official website.
The company's promoters should not change after applying for the IPO for at least one year.
The SME IPO must have at least 50 investors subscribing to the IPO.
“Mainline IPOs”
These types of issues are recognized in the market. This type of IPO is for private companies that have some market share or are large in market capitalization. After the IPO closes, the shares are listed on the BSE and NSE, and the remaining shares of the shareholder are refunded.
The criteria for “Mainline IPO”
At least one promoter should have at least three years of experience in the same industry.
The issuing company must submit to the NSE the annual reports for the last three fiscal years.
The company has a positive net worth.
The post-issued paid-up equity of the company should be more than Rs 10 crore.
Market capitalization should be more than Rs 25 crore.