An Initial Public Offering (“IPO“) is a process by which a private company makes an offer for shares to the public investors and becomes a publicly traded company.
Applicable Laws and Regulations
Under Section 23 of the Companies Act, 2013 (“Companies Act“) , the company can have an IPO by way of releasing a prospectus, this prospectus (also referred to as the offer document) is a document that includes every relevant detail about the company that is disclosed to the investor in order to make an investment decision.
These disclosures in the prospectus are requirements not just under the Companies Act but also include various disclosure requirements under the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2015, as amended from time to time (“ICDR“) and the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time (“LODR“) (collectively, “the SEBI Regulations“).
These disclosure requirements include disclosure about the company’s (i) financials; (ii) pending litigation by and against the company, its subsidiaries, its promoters and its directors; (iii) management; (iv) business model; (v) organisational structure; (vi) risks factors related to their business. The prospectus also includes the object or purpose of the IPO. Such information is imperative for both retail and institutional investors to make the investment decision.
Parties involved in an ipo and their basic roles
(i) The Company – The role of the company is to provide all documents as required to draft the prospectus. The role of the company also includes various certificated need to be signed for verification by all the Directors of the company along with the key managerial personnel of the company. A board resolution is to be passed to set up a committee of the board to oversee the IPO process, further various resolutions are passed by such committee to facilitate the IPO.;
(ii) Merchant banker(s) / Book running lead manager(s) (“BRLM(s)“) – Merchant Bankers help the company in the process of raising finance by tapping into both the domestic as well as the international markets for investment in the issue of shares. The BRLM(s) also provide various services to the company including providing underwriting arrangements, appointing registrars, arranging for advertising and publicity as well as compliance with the listing requirements of the Bombay Stock Exchange (“BSE“) and the National Stock Exchange (“NSE“) (collectively, “the Stock Exchanges“) as well as the price determination process, i.e, fixed price issue or book building process issue;
(iii) The Domestic Legal Counsel of the company and the Domestic Legal Counsel of the BRLM(s)- Their role includes, but is not limited to, the due diligence of documents and the preparation of the prospectus, the preparation and execution of the placement agreement, among other agreements, preparation of various intimations to be made to the Securities Exchange Board of India (“SEBI“) as well as the Stock Exchanges as specified in the SEBI Regulations.; and
(iv) Auditors [both Independent Auditors and Statutory Auditors of the company] – They provide the comfort letter and various certificates that verify all the financial information as provided by the company.