When a company makes public issue of shares for the first time, it is called Initial Public Offer. The securities are sold through the issue of prospectus to successful applicants on the basis of their demand. The company has to appoint underwriters in order to guarantee the minimum subscription. An underwriter is generally an investment banking company. The underwriter agrees to pay the company a certain price and buy a minimum number of shares, if they are not subscribed by the public. The underwriter charges some commission for this work. He can sell these shares in the market afterwards and make profit. There may be two or more underwriters in case of large issue.
The company has to issue a prospectus giving full information about the company and the issue. It has to issue share application forms through the brokers and underwriters. The brokers collect orders from their clients and place orders with the company. The company, then makes the allotment of shares with the help of stock exchange. The share certificates are delivered to the investors or credited to their demat accounts through the depository. This method saves time and avoids complicated procedure of issue of shares.
