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* Loss of control and stronger [[principal–agent problem|agency problems]] due to new shareholders
* Increased risk of litigation, including private securities class actions and shareholder derivative actions<ref>{{cite journal|last1=Rose Selden|first1=Shannon|last2=Goodman|first2=Mark|title=The Shift in Litigation Risks When U.S. Companies Go Public|url=https://www.transactionadvisors.com/insights/shift-litigation-risks-when-us-companies-go-public|journal=Transaction Advisors|issn=2329-9134|access-date=16 January 2015|archive-date=6 November 2018|archive-url=https://web.archive.org/web/20181106192504/https://www.transactionadvisors.com/insights/shift-litigation-risks-when-us-companies-go-public|url-status=dead}}</ref>
Advantages and disadvantages of IPO
Just like every coin has two sides, IPO also has advantages and disadvantages for the company and investors.
1. Advantages of IPO for the company:
When a company lists its IPO in the stock market, it helps the company in its development, expansion, capital expenditure, repayment of outstanding loans and raising large amounts of money.
When a company brings its IPO, it provides an exit route for promoters and old investors.
Company IPO is a cost-effective way of raising capital as companies do not have to pay interest on the money raised from the public, nor do they have to return the capital raised.
Public companies get easier access to finance than private companies. This is because public companies are required to maintain transparency in their business operations, which reduces the risk for lenders by having all the information available for verification.
IPO increases visibility and helps to build a brand image for the company.
IPO enhances the reputation of employees and builds their trust in the company. It helps to retain employees and attract new employees.
IPO enables correct valuation of the company.
IPO promotes discipline in management as the company is accountable to its shareholders for all its actions.
By going public, the company gets to know the view of outsiders. This helps them to plan their actions for better prospects.
2. Benefits of IPO to Investors
Zero cost investment, as there are no charges to apply for IPO, unlike buying shares on the secondary market, where you have to pay brokerage and regulatory fees.
Applying for IPO is simple, easy and hassle-free.
By applying for IPO, investors get an opportunity to participate in profitable and high-growth companies.
IPOs offer a chance to earn high profits quickly in case of premium listing or allow wealth creation in case of long-term investment.
Strict IPO norms make IPO markets more professional and secure.
The Red Herring Prospectus (RHP) issued for an IPO contains all the necessary information about the company to help investors make informed decisions.
In case of successful allotment, investors will become shareholders of the company. Shareholders can participate in certain corporate actions and elect members of the board of directors through voting rights.
3. Disadvantages of IPO for the Company
Preparing an IPO requires a lot of time from the company's promoters, management and employees.
Although IPOs are a low-cost way of raising capital, it can be expensive due to fees payable to intermediaries and fund managers.
IPOs may result in dilution of ownership among different shareholders which was previously limited to a few promoters and investors.
The company conducting the IPO is required to file regulatory documents on a regular basis along with the required disclosures. This increases the administrative cost for the company, as it has to hire a team to oversee and complete these tasks.
By going public, the company becomes accountable to its investors and hence must maintain a relationship with the investors and meet their expectations.
4. Disadvantages of IPO for Investors
Investors do not have any background information about the company conducting the IPO as it is a new company going public for the first time. The investor has to go through the entire RHP to know all the details of the company.
The investor may suffer losses if a discount listing is done with the goal of quick returns (listing gains).
There is no guarantee of allotment in an IPO in case of oversubscription.
==Procedure==
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