Initial public offering (IPO)

Initial public offering (IPO) is a public offering in which shares or stock of a company are sold to institutional investors that in turn, sell to the general public, on a security exchange, for the first time. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Initial public offerings are mostly used by companies to raise the expansion of capital, possibly to monetize the investments of early private investors, and to become publicly traded enterprises.

Risks involved in the public offering and how the securities laws deal with them

There are many risks involved in IPO. Many companies that are going public for the first time are new. Therefore, when one invests in public offering stocks they are sharing the risks of the company. If the company goes under, the investor can stand the chance of losing his or her investment .Initial public offering (IPO) may be a risky investment because of the following reason

• Most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future value
• For the small or individual investor, it is tough to predict what the stock will do on its initial day and in the near future because there is often little historical data with which to analyze the company.
• For the issuing company it may be risk that required funding will not be raised
• Public dissemination of information which may be useful to competitors, suppliers and customers.
• Initial public offering (IPO) increased risk of litigation, including private securities class actions and shareholder derivative actions
• For issuing company it must Required to disclose financial and business information

How the securities laws deal with them
The SEC does not regulate how the business decisions and how IPO shares are allocated(“U.S. Securities And Exchange Commission”, 2014). However, once a company decides to go public, they must register with the SEC under the Securities Exchange Act of 1934.

At the time of the registration process they provide information regarding their financial state and business operations. In addition to federal securities law, a company may also have to comply with state securities laws, also known as “blue sky” laws (Inc., 2014).

Foreign Exchange Risks a Company Can Face and How to Mitigate Them Like any investment, either buying or selling, there are inherent risks involved. The foreign exchange risk incorporates not only the inflation of the parent country, but the inflation, economic stability, and political standings of the foreign countries. The initial evaluation of any risk is to identify the source of the risk and then find a way to minimize it.