People who work in areas such as the stock market frequently hear the term "Initial Public Offering". So, what is an Initial Public Offering? The definition of an initial public offering is when a private company chooses to go public by selling its stock to other people.
In Turkey, holding companies are the only privately owned companies recognized by Turkish legislation to conduct public offerings and sell stocks for the capital markets. Public offers are authorized for both joint stock companies with capital reserves and joint stock companies with registered capital. You may need a Turkish commercial lawyer regarding IPO cases.
History of IPO
The first IPO might well have occurred in the 1600s when shareholders in the Dutch East India Company were offered to Dutch residents. In Turkey, the public offering has a long history dating far back to the Ottoman Empire. In 1873, the first institutional market was constituted.
The reason behind that was the fiscal shortfalls that the Ottoman Empire began experiencing in the mid-1800s; short-term borrowing needed to be required, and the funding needed was given by intermediaries. But the regulations regarding this that are real and relevant today were made during 1989-94.
How Does an IPO Work?
To understand how the IPO works, first of all, it is necessary to explain the definition of an Initial Public Offering. The term refers to the process through which a company offers its stock for sale on the stock market to become publicly owned. The sale of a company which shares to a wide number of investors is known as a public offering. The company provides its shares to shareholders on the Istanbul Stock Exchange after they have acquired the necessary permissions.
Initial Public Offering Process and Steps of IPO
Below are the steps for using the IPO method to transition from a private to a public company in Turkey:
- The company needs to register with CMB and Istanbul Stock Exchange.
- The experts in CMB and Istanbul Stock Exchange must evaluate the company.
- The Public Offering must be authorized.
- Deciding on the sale method, for example, ISE.
- The sale prices will be announced to the public.
- The stock exchange's board of directors will assess the sales and how they are performed in the market, and if they have reached a level that they can exchange, they will be presented to the stock market.
- Finally, the corporation must submit a request to the Central Registry Agency to obtain records data available on capital market assets. They also need to be provided privileges applicable to them as well.
Considering that each country may have various steps, those who intend to register in Turkey should carefully examine these regulations.
Advantages of an IPO
A company's decision to go public includes both advantages and disadvantages. Among these advantages are the following:
- The capital increase allows a business the opportunity to raise more money in the stock exchange than it might have been able to accomplish without the help of investors.
- Your company will gain more stock value.
- This way, the company will attract qualified employees.
- The company will become more known to the public eye.
- The debts will be reduced. Permits a business to make a profit without accumulating debt.
The Disadvantages of an Initial Public Offering
- Time management can be an issue since it is necessary to announce earnings publicly regularly, which takes a lot of time.
- Evaluation of public information can be a problem because public corporations must publish a significant amount of financial information, such as detailed annual financial statements.
- IPO Share Transactions Fees will cost you additional money.
Although an IPO is a tried-and-true strategy, it's a smart idea to take your company's needs and status into account before implementing it.
Alternatives to Initial Public Offering
An initial public offering is one of the most often used strategies for a company to go public. An IPO is a traditional way to acquire public ownership, and it's a good solution for an established private business needing more cash flow. But for a small or newly established company, it typically could be better. Here are some alternatives:
- Non-Offering Prospectus (NOP)
- Staying Private
- SPAC
- Direct Listing
- Reverse Takeover (RTO)
- Dutch Auction
You will accomplish a rather more effective outcome if you select among these alternatives while putting your company's needs and future ambitions into consideration. For instance, since Direct Listing doesn't involve underwriting, it doesn't create new stock, unlike IPO; rather, it solely provides the current stock to sell to the market, saving on certain expenses.
IPO Markets and Investing in an IPO
Companies sell their stock to numerous investors, and the place they sell these stocks is called the IPO market. Afterward, companies can offer their shares to shareholders on Istanbul Stock Exchange once they have received government approval.
You can join in the profits of companies with a high potential for growth by investing in an IPO, meaning stock. Using this strategy, you can obtain excellent investing tools and large profits over the short and long term.
You can open a bank account that has been licensed by the CMB and conduct these transactions if you want to purchase or sell public offerings.
Public Company Responsibilities
A company has to assume specific responsibilities when it comes to the market. These responsibilities can relate to a variety of topics. These include, for example:
- Customer Satisfaction
- Recognizing and Considering Public Comments
- Accountability Managing Finance
Any company that decides to go public should know how to adapt since these issues reveal a lot about the company's strength and credibility in society.
Potential Risks and Liabilities
While initial public offerings provide an exciting opportunity for businesses to enter the market, these opportunities are at risk. These risks can be about shareholders, secrecy, data protection problems, legal problems, and many more.
By contacting our Istanbul Law Firm, you can get consulting services from experts in the field of Turkish commercial law. Based on the legal legislation in Turkey, you can get detailed information about the process of purchasing publicly traded assets or initial public offerings of company assets.
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