Are you looking to raise equity capital by offering shares in your company to the public for the first time?
Why would you look to raise capital in this way?
An Initial Public Offering (IPO) is when a company seeking capital ‘floats’ shares in itself to the public for the first time, which is the ‘initial’ offering to the public. This is the mechanism allowing the company to expand its access to capital for various reasons, whether it is to fund future growth, repay debt or for working capital.
The IPO allows the company ‘offering’ (‘floating’) their shares to tap a large pool of investors to provide it with capital for future growth, repayment of debt or even for working capital.
Floats or IPOs are generally undertaken by smaller companies looking to expand or by large privately owned companies who want to become publicly traded.
This is a highly regulated area, with no room for going it alone, or hoping that a ‘near enough is good enough’ approach will be successful. It is in your company’s best interests to obtain proper legal assistance with your IPO, to prevent delays and significant costs associated with having to start the process again, losing time and money in the process. Raising funds via an IPO can be a complex process, as the documents produced as part of that process are lengthy and complicated. There are no shortcuts.
Your Prospectus must be prepared and lodged with the Australian Securities and Investments Commission (ASIC). This Prospectus must contain all the relevant information investors need to be able to make an informed decision as to whether they invest in your company.
Deciding to whom a company will offer its shares can be complicated. Different companies will take different approaches, or a combined approach. It may allocate some of its shares to existing customers, institutional investors, or the general public. If a potential shareholder is entitled to apply for shares, it can do so by completing the application form which forms part of the Prospectus, or via a broker if the broker is participating in the IPO.
Once applications for shares have been received, the company can confirm ‘allocations’ of shares. An ‘oversubscribed’ IPO means that the company has received applications for more shares than it has on offer. In this scenario, applications for shares may be ‘scaled back’ and applicants may receive fewer shares than they had applied for, or none at all.
Once allocations have been made and the funds for the applications have been received by the company, the new shares will then be ‘listed’ on the stock exchange. Once the shares are listed, they can be traded as normal. This is known as the ‘secondary capital market’, whereas the IPO is known as the ‘primary capital market’. Once listed, the price of the shares rises or falls depending on market conditions, and the supply and demand for that particular company’s shares.
Where an already listed company wishes to raise additional capital, it may offer new shares to existing shareholders. This is called a ‘rights issue’. Shareholders may be offered these additional shares at a special price in proportion to their holding of pre-existing shares. Participation in a rights issue is optional for pre-existing shareholders. The documentation required for the rights issue is not as extensive as the documentation required for a Prospectus, but it is still complex and highly technical.
At MSM Legal we have extensive experience assisting companies through the processes of IPOs and rights issues. Let us help you navigate through these processes, so that you can focus on running your business.