In developed countries, most businesses before going into operation or after a period of time conduct IPOs. However, in Vietnam, this job is still not really popular and has only been known in the past few years. Therefore, when sensing the strength of IPO, Vietnamese companies have conducted this process quite quickly and strongly.

Along with the strong development of the stock market, businesses have been able to raise more capital in a shorter time through conducting securities offerings. Along with that, the company’s shares can also gain value-added prices after being IPO.

1. Concept

IPO is a term referring to the initial public offering, i.e. the activity of issuing shares and going public for the first time for joint-stock companies.

IPO companies will hire a securities underwriter such as investment banks, securities companies to perform activities such as IPO stock valuation or underwriting their securities. An IPO will give businesses an opportunity to raise large amounts of capital through the issuance of securities through the primary market.

While IPOs bring many benefits, there are also costs worth involved, mainly related to processes such as banking and legal fees, but businesses also need to constantly disclose important and sometimes sensitive information.

2. Purpose of IPO of enterprises

• Capital raising

The biggest purpose of IPOs is for businesses to raise capital from the public. An IPO will help businesses have many times more capital from the public in addition to the capital coming from shareholders. This capital will be treated as equity, thereby reducing the pressure to pay debts and interest for businesses.

• Increase in asset value

After the successful IPO, the value of the business has increased significantly and the business will be listed on the stock exchange. This is an opportunity for large capital from the public to pour into such a business as a well-performing enterprise, thereby helping to increase the asset value of the enterprise.

• Branding

The implementation of the IPO will support businesses to promote their brands, build credibility as well as quality on the stock exchange with companies in the same industry in the market. Thereby creating competitive advantages, enhancing brand awareness and increasing revenue and profits for businesses.

• M&A Platform

A deep goal for IPO, this is also a leverage for businesses to carry out mergers and acquisitions in the future. Post-IPO companies, when they have a large enough position, will have the opportunity to acquire inefficient companies to increase the position of the entire parent company.

3. Pros and cons of IPO

• Advantages of IPO

The issuance of shares brings a lot of benefits to businesses, including:

• Help businesses increase capital very quickly and can use this capital fund to improvebusiness operations, invest in new fields, improve techniques, …
• Easily attract more human resources to build potential human resources, promote creativity, develop infrastructure to serve production and business.
• Increase the quality and accuracy of financial statements.
• The company does not need to repay the capital funds obtained from the issuance of shares. Whether a company’s stock value rises or falls, the business has no responsibility in that regard. The stock market is unpredictable, so the loss or profit depends entirely on the ability of the investor.
• With ordinary shares, the company also does not need to pay dividends to investors.
• Disadvantages of IPOs

In addition to the outstanding advantages, IPO also has certain disadvantages that businesses must face and overcome, such as:

• The heads of the company will be subject to shared ownership as well as no longer able to self-determination.
• There are high requirements and it is difficult to register for an IPO because of the complicated process and legality.
• If issuing shares to the market, enterprises need to pay fees such as: advertising costs, market research, stock legality,…
• Enterprises need to disclose financial and business information; This information may be exploited by competitors.
• Increased risk of litigation, including actions of private securities and actions of shareholder derivatives.
• It is difficult to control problems arising due to new shareholders.

Above is KALF’s consultation on The concept of IPO and some related legal issues. All of our above advice opinions are based on applicable legal provisions. If you have any questions or requests about legal issues, please contact us for timely answers.