Question

Describe the involvement of the issuing firm, the underwriter and the Securities and Exchange Commission in the process of an Initial Public Offering. Describe the common commitments of both the underwriter and the shareholder of the issuing firm in the Aftermarket. Describe a Rights Offering. What are the advantages of a Rights Offering over a Seasoned Equity Offering through an Underwriter? What is a Private Equity Investor, and what sort of firms do they tend to take equity stakes in, and why?

Answer 1

The Initial Public Offering which is commonly known as IPO is the process by which companies goes public from private and sell shares of their firms. This is called the issuing form.

Generally, it hires a bank or a consotium of banks or financial institutes, to handle the IPO. This is done to spread the funding and the risks for the IPO. The banks agrees to the firm on the amount of money the IPO will make and how much money will the bank walk away with. This process of handling the IPO by a bank or a consotium of banks or financial institutes is called underwriting.

After the agreement between the issung firm or company and the bank or the consotium of banks or financial institutes to an underwriting deal, the bank put together a registration statement to be filed with the Security and Exchange Commission (commonly know as SEC). The statement will contain detail information about the company, its offering, and financial, legal, management background. Along with this information, the purpose of funds and name of the shareholders before the company goes public.

Based of these information, the SEC will investigate the company to make sure that all the information submitted is correct and also all the financial date is also enclosed. If all the required formalities are cleared by SEC, the SEC and the company work together to determine a date to release the IPO to public.  

Please note - once a company goes public, it comes under the guidelines of SEC in terms of financial reports, disclosure rules like holdings and transactions of insiders or the officers and directors of the company.