The capital market provides various avenues for companies to raise funds and enable their shares to be traded on the stock exchange. Two common methods are IPO and OFS, where IPO stands for Initial Public Offering and OFS stands for Offer for Sale. Each approach serves distinct purposes and has different implications for the company and its shareholders.
In this comparison, we will explore the fundamental differences between an IPO and an OFS and understand how they impact the company’s fundraising and shareholder dynamics.
Comparison between IPO and OFS:
Purpose:
- IPO: In an IPO, a company offers its shares to the public for the first time to raise capital. It allows the company to become publicly traded and provides an opportunity for the public to become shareholders.
- OFS: In an OFS, existing shareholders, such as promoters or large institutional investors, sell their shares in the open market to raise capital. The company itself does not raise funds through an OFS; it’s a method for existing shareholders to monetize their holdings.
New Share Issuance:
- IPO: In an IPO, the company issues new shares, and the funds raised are directed to the company’s coffers.
- OFS: No new shares are created in an OFS; existing shares are sold, and the proceeds go to the selling shareholders.
Regulatory Process:
- IPO: Going public through an IPO requires a comprehensive regulatory process, including the submission of a prospectus and adherence to disclosure and compliance norms.
- OFS: An OFS is a relatively straightforward process with fewer regulatory requirements compared to an IPO.
Price Determination:
- IPO: The IPO price is determined through a book-building process, where investors bid for shares, influencing the final offer price.
- OFS: In an OFS, the selling shareholders determine the price based on market demand and conditions.
Shareholder Base:
- IPO: An IPO expands the company’s shareholder base as new investors participate and become shareholders.
- OFS: An OFS does not alter the company’s shareholder base, only facilitating the transfer of ownership from existing shareholders to new ones.
Purpose of Proceeds:
- IPO: Funds raised through an IPO are typically used for business expansion, debt repayment, working capital, or other growth initiatives.
- OFS: Proceeds from an OFS go directly to the selling shareholders, and the company does not benefit directly.
Conclusion:
In conclusion, IPO and OFS are distinct methods for companies to access the capital market and enable their shares to be traded on the stock exchange. While an IPO involves issuing new shares and raising funds for the company’s growth, an OFS revolves around existing shareholders selling their shares to unlock their investment.
Frequently Asked Questions
IPO, FPO and OFS full form in stock market?
• IPO: Initial Public Offering
• FPO: Follow-on Public Offering
• OFS: Offer for Sale
IPO vs FPO
IPO (Initial Public Offering) and FPO (Follow-on Public Offering) are two primary methods for companies to raise capital from the public. While IPO is the first-time offering of shares to the public, FPO involves offering additional shares to the existing public shareholders. IPO helps companies become publicly traded, while FPO allows them to raise more capital for growth and expansion.