All business entities need funds to finance their day to day operation. There are two ways of raising funds for the business i.e. in the form of equity which mean the owned capital of the company or debt which represents the borrowed capital of the company. When funds are raised as equity, the company approaches various individuals to sell its shares at a fixed price. When this offering is done by the company for the first time, it is known as IPO or initial public offering.
As against this, when the shares offered for sale, for the second, third or fourth time is called follow-on public offering, (FPO).
Nowadays, the public offering is very common, and if you are also thinking to invest your hard earned money in any company, it would be beneficial to have a basic knowledge of words, abbreviations and jargon, which are often used in the stock market.
Content: IPO Vs FPO
|Basis for Comparison||IPO||FPO|
|Meaning||Initial Public Offering (IPO) refers to an offer of securities made to the public for subscription, by the company.||Follow-on Public Offering (FPO) means an offer of securities for subscription to public, by an publicly traded enterprise.|
|What is it?||First public issue||Second or third public issue|
|Issuer||Unlisted Company||Listed Company|
|Objective||Raising capital through public investment.||Subsequent public investment.|
Definition of IPO
Initial Public Offering, shortly known as IPO is the first public offering of equity shares of a company going to be listed on the stock exchange and publicly traded. It is the main source of acquiring money from the general public to finance its projects and the company allots shares to the investors in return. It is the turning point in the lifecycle of the company; that transforms from a small closely held company, which seek to expand their business or large privately owned firms to a publicly listed one.
There are two ways in which IPO can be done, firstly when the fresh issue of shares takes place, resulting in injection of fresh capital to the company. Secondly, when existing shares are offered for sale, wherein no infusion of capital takes place because the amount received as proceeds from the issue of shares go to shareholders who offer their shares for sale.
Certain eligibility conditions are required to be fulfilled by the company so as to make an IPO. Guidelines specified by the Securities and Exchange Board of India (SEBI) and Company Act need to be complied by the promoters of the enterprise.
Definition of FPO
FPO, an acronym for Follow-on Public Offering, as the name suggests it is the public issue of shares to investors at large, by a publicly listed company. The process is after an IPO; wherein the company goes for a further issue of shares to the general public with a view to diversifying their equity base. The shares are offered for sale by the company through an offer document called prospectus. There is two type of Follow-on Public Offering:
- Dilutive offering
- Non-Dilutive offering
Key Differences Between IPO and FPO
The difference between IPO and FPO can be drawn clearly on the following grounds:
- Initial Public Offering is a process through which privately owned companies can go public by offering their shares for sale to general public. Follow-On Public Offering refers to a process in which publicly owned companies can make further issue of shares to the public through an offer document.
- IPO is the first public issue of the company’s shares. On the other hand, FPO is the second or third public issue of the shares of the company.
- IPO is the offering of shares by an unlisted company. However, when a listed company makes the offering it is known as Follow-on Public Offering.
- IPO is made with an aim of raising capital through public investment. Unlike FPO, made with an objective of subsequent public investment.
- IPO are comparatively riskier than FPO. It is because in IPO the individual investor is not known, of what can happen with the company in future, while in the case of FPO, the investor already has an idea about company’s investment and growth prospects.
There are many companies, for whom their IPO is their last public issue. However, with the expansion of business they are likely to make further issue of their stocks, with the help of FPO. In finer terms, the first public issue of the company is called IPO whereas the subsequent public issue of shares by the same company is called FPO.