It is normal (although not essential) for companies seeking to list to raise capital in an IPO. This capital can be raised entirely by the company through the issuance of additional securities or can be partially raised by the shareholders should they decide to sell-down some of their securities into the IPO as well.

Where an issuer is considering allowing major shareholders to liquidate some of their investment through a sell-down, issuers will need to be aware that on many reputable markets there will be shareholder lock-in regulations which will restrict the percentage any shareholder can divest into the IPO and require the remaining shares to be held for a minimum period post-listing. These rules prevent entrepreneurs from creating companies and then, after a few years, taking them public and stepping away entirely by capitalising on their investment, leaving the company to flounder without their direction and control.

Whether the company should issue new securities to fulfil the entire IPO or shareholders should themselves receive some of the funds raised will partly depend on how much capital the company needs to raise and what it will use the funds for. In any IPO the regulator will usually expect to see clear disclosure in the offering document of the use to which the funds raised will be put. An investment is unlikely to be attractive to investors if a company is raising US$500 million but does not need that money to grow, expand or diversify. In effect, this likely means the funds are being raised purely for working capital and will sit in a bank account prior to being employed at a later date.

In deciding whether a listing is right for an issuer, consideration should be given to the amount of capital being raised, whether that money can be raised privately instead, and the company's likely future needs for capital. For example, if a company is seeking to raise US$20 million it is more likely that money will be available to it privately than if it is seeking US$1 billion. Where a company has ambitious plans for future growth and is likely to need access to additional funding in the coming years, there is a good argument that being listed will make this easier, as successive rights issues can follow on markets where this is permitted, to enable investors who bought into the IPO to provide additional capital as the company requires it.

Too often issuers wish to be listed on a stock exchange because of the increased profile they believe it attracts, but profile itself should not be the main factor in any decision to list. While increased profile should not be the only reason a company has to list, it is a factor to consider. Increased profile facilitates doing business internationally. Companies that are listed and subject to rigorous continuous disclosure regimes and corporate governance requirements may find it easier to contract with counterparties as there may be more trust in the ability of the listed company to deliver on contracts and more transparency on the financial position of the company.

As a result of the continuous disclosure obligations on listed companies, stock exchanges have sophisticated systems for dissemination of price sensitive and other information about companies on their market. This can be used to the advantage of listed companies who may choose to actively disseminate press releases about their business which show them in a positive light through the same channels. News providers like Bloomberg are more likely to disseminate information about a listed company where the information has been published through a stock exchange system. However, companies should seriously consider the implications for their business being subject to continuous disclosure regimes in advance of any decision to list. For example, if a company wants to keep their dealings private then being listed will not allow that.

The valuation can be another compelling reason for a company to list. Not only will the company have an obvious value at the outset, but once the company begins trading on the market a valuation of the company can be reached quickly and cheaply on any given day based on the market capitalisation at close of trading on that day.

This equally facilitates further investment into the company, as the value of new securities issued is usually based on the market price. In such circumstances, the extent of due diligence required is reduced.

However, on the flip side, once the market price of the company's shares is available to the public a company may become a target for a takeover by a competitor or other third party. In these circumstances, takeover regulations will apply, and it may be difficult or impossible to prevent the transaction.

Before a company decides to list, the advisors will give an indicative valuation for the company. If the valuation is substantial there is a better argument for listing. As the IPO progresses the true value of the company will often be determined during a book building process whereby a register is created of the wholesale market bids for the securities on offer. From this list of offers the most appropriate company value can be determined on the basis of supply and demand principles. (A fuller discussion of the bookbuilding process is beyond the scope of this article.)

The shareholders of a company considering listing may be keen to go public to the extent they have plans to divest their own holdings either fully or partly in the short to medium term. Once listed there is generally a constant liquid market for the securities meaning that any person wishing to divest can easily find buyers at the current market price.

Listed companies have significantly higher compliance costs and often need personnel or entire departments employed just to ensure continuous disclosure and corporate governance obligations are met consistently. To the extent the regulator perceives a breach, costs will be incurred in engaging with the regulator and satisfying them that no action should be taken.

In addition, there are generally restrictions placed on how listed company boards must be structured and how decisions should be taken at the board and shareholder levels through the corporate governance requirements (see below, Corporate governance considerations: Minimum standards).

Once a company is listed, its directors and officers will be subject to restrictions in relation to when and how they can buy or sell securities in the company. Insider trading legislation often applies to listed entities only and many exchanges also have regulations around dealings in shares by directors and senior officers even when no inside information is present.

In many jurisdictions these roles will be performed by a single investment bank. The roles will generally be split if the lead manager is not prepared to underwrite the entire offering or not qualified to (or not willing to) assume the sponsor role.

The lead manager is the key advisor and its role comprises:

If a separate underwriter is required the lead manager will generally assist the issuer to identify the best entity and help negotiate the fee arrangements. In some cases the lead manager will also undertake market making or stabilisation activities post-listing to ensure the trading price in the securities stays reasonably stable and that there is adequate liquidity, but these functions can be undertaken by another service provider or may not be needed at all.

The sponsor confirms to the regulator and/or the exchange that the issuer has been properly advised and the offering document meets the requirements of the regulations. Many jurisdictions require a public offering to be sponsored (for example, certain types of listing on the London Stock Exchange and NASDAQ Dubai).

Where the offering is global in nature this role will often be split between global counsel and local counsel in one or more jurisdictions where the offering takes place.

Prior to the IPO the issuer's counsel will advise on the following, among others:

As the listing transaction proceeds the legal advisor to the issuer will arrange and conduct due diligence on the issuer, so that the offering document discloses all material information about the company. A formal legal opinion will often be required on the offering document to protect the directors of the issuer from liability and this will usually be given by the issuer's legal advisors. In most developed jurisdictions a company director can be held personally liable for material misstatements in an offering document.

The issuer's counsel will take a lead role in liaising with the regulatory authorities involved in the offering and in the listing. Thus, they will:

When any additional advisor is appointed the issuer's counsel will review and provide advice upon the terms of business and contracts between the company and such advisors.

As with legal advisors to the issuer, there may be separate global and local counsel for the lead manager. The role of this advisor is to:

The lead manager will often seek legal opinions from its advisors, including opinions on the completeness of the offering document where the lead manager is also taking responsibility for such offering document as a sponsor.

In many cases US securities law legal opinions will also be sought as many global offerings now have a US component to them. These legal opinions and advice can form a major part of the counsel's role, particularly in respect of Rule 144A offerings and where an opinion or letter concerning disclosure requirements is required for market reasons.

The legal advisors to the underwriter will conduct more elementary due diligence to ensure the valuation of the company is correct and will advise the underwriter on the terms of the underwriting agreement.

The underwriter subscribes for some or all securities which are not taken up by investors directly during the offering process. They will either subscribe for securities directly and on-sell them subsequently or will find other investors from their client base to subscribe.

An offering is usually underwritten as it guarantees the funds required will be raised.

The placing agent assists with marketing the securities being offered and distributes the offering document and securities to investors. A placing agent is not always required for an IPO. Where one is most commonly seen is where the lead manager itself is not licensed to distribute the securities being offered in all jurisdictions where the offering will be made. Where the lead manager is licensed in some but not all of the relevant jurisdictions, different placing agents may be appointed for each jurisdiction which is not covered.

In rare cases, a placing agent may be appointed in a jurisdiction which the lead manager already has covered if it is felt that this will maximise distribution and marketing of the securities being offered.

The reporting accountant conducts a financial due diligence on the issuer and ensures the financial information in the offering document is accurate. They may also need to:

Towards the end of the IPO process, the reporting accountant will provide a series of letters and reports, some of which are included in the offering document.

Where the lead manager acts as the sponsor too, it will often require the reporting accountant to report to it on the financial position of the company to minimise its liability.

The depository is usually a bank. It will be the legal owner of the underlying securities where depository receipts will be issued to investors (see below, Structuring the IPO: Securities offered). The depository issues depository receipts over the underlying shares and it is those receipts that represent the investor's beneficial ownership in the underlying securities. The depository will:

The depository's role is administrative in nature. Its rights and obligations, and fees are subject to a depository agreement (which the depository receipt holders also benefit from).

The appointment of a public relations consultant for an IPO is optional but becoming more common. This consultant will take responsibility for publicising the IPO at the right time and using the right methods.

A company preparing for an IPO must:

Corporate governance requirements that must be met by a public company vary from market to market. In practice, large well established companies may already meet most of the required standards, whereas companies which are newly formed or smaller may need to undertake a fair amount of work to ensure compliance.

Broadly speaking, most markets have minimum standards with respect to:

An internal audit department is often appointed within the company to oversee and regularly monitor governance policies and procedures and to ensure staff at all levels of the company group are adequately trained and updated about the above.

The Articles of a listed company will often be much longer and more complex than the Articles of a closely held private company. The board of directors in a private company typically represents most shareholders and makes all but the most important decisions about how the company is run, but in the case of a listed company the Articles will usually prescribe a far greater list of matters upon which shareholders must be consulted. This is primarily to offer minority shareholders some protection against decisions which benefit only the majority shareholders.

Some of the corporate governance requirements will appear in the listed company's Articles as well, so the board appointment and composition provisions will differ significantly from provisions in private companies' Articles.

In addition, depending on the jurisdiction, many types of corporate actions may be covered by the Articles, for example:

Pre-emption rights are unlikely to be covered, by contrast to private companies. This is because such rights are impossible to administer for a company that may have thousands of shareholders and where its shares are traded through buy and sell orders which get matched on the market. However, there are likely to be provisions stating that new shares must be offered on a pro-rata basis to all shareholders first unless they are offered only in small quantities (for example, no more than 5% per year).

Substantial provisions will be included which determine how and when shareholder meetings are called and how votes are administered at such meetings. In addition, there will usually be untraced shareholder provisions which set out how long unclaimed dividends are kept for and how shareholders are treated if they identify themselves after several years seeking unpaid dividends.

Unlike in a private company, the Articles will not list all shareholders and directors as there will be many. Instead registers will be kept by a registrar noting them and any changes to these positions.

The amended Articles do not formally take effect until immediately prior to the listing. If adopted earlier it will mean approvals for parts of the IPO process will be more cumbersome to obtain if, for example, the shareholders and not the board may be required to pass the required resolution.

The following types of securities may be offered.

Ordinary shares. The most common structure involves a straight issuance of new ordinary shares in the issuer ranking pari passu with the existing shares. This will result in the funds being raised by the company as equity. In some cases the existing shareholders may be selling some of their shares as part of the IPO.

Global depository receipts. Global depository receipts are used where either:

Global depository receipts are most often fungible in nature which means the holder of the receipts can go to the depository at any time and demand to receive the underlying shares (assuming that person is qualified to hold the underlying shares directly). Often holders of ordinary shares can also deposit those shares with the depository and ask for depository receipts to be issued to them so they no longer hold their shares directly.

The most common example where global depository receipts are used is where, for example, a company already has its ordinary shares listed on the NASDAQ Dubai Stock Exchange and it wishes to also list on the London Stock Exchange. That company will issue more shares (or occasionally transfer shares already on issue) to the depository. The depository will issue depository receipts on a 1:1 basis, or any other ratio that is appropriate, to the subscribers in the IPO and those depository receipts will list on the London Stock Exchange. Post-transaction the ordinary shares will continue to trade on the NASDAQ Dubai Stock Exchange and no depository receipts will be tradable on that exchange. The shares underlying the depository receipts will be held without trading by the depository. The depository receipts will trade on the London Stock Exchange and the ordinary shares will not be tradable on the London Stock Exchange. Where a holder of depository receipts on the London Stock Exchange wishes to trade on the NASDAQ Dubai Stock Exchange it will first need to convert the depository receipts it holds (assuming they are fungible) into ordinary shares and then trade in Dubai, and vice versa for holders of ordinary shares wishing to trade on the London Stock Exchange.

One of the benefits of this structure is that it permits bundles of shares to trade with one depository receipt in situations where the trading price of the ordinary shares on the home market is too low to be attractive to investors in the secondary market. The two categories of securities can theoretically trade at completely different values and in different currencies.

Global shares. Global depository receipts are not always required where a secondary listing will be undertaken. Across developed markets it is now often possible for the ordinary shares to be traded on two markets. If a person with ordinary shares trading on one market wishes to trade on the other they can do so and the shares will be shunted between the two markets by the buying and selling brokers during the settlement process. The global share concept can leave room for currency arbitrage to take place across two markets trading in different currencies and this is not always seen as advantageous.

Other forms of equity. There has been an increasing prevalence over the past decade for equity offerings to be made which are not offerings of ordinary voting shares or global depository receipts.

Class B (or alternative class) shares or preference shares can be issued. The purpose of offering preference shares with a preferential dividend entitlement or an alternative class of shares is so that the controlling shareholders or other existing shareholders of the entity can continue to control the votes at shareholder meetings. Holders of the preference shares or alternative class of shares are given a right to share in the profits of the company (either on a preferred or a non-preferred basis over the ordinary shareholders) but will often not be offered a right to vote at shareholder meetings. Investors acquiring a small stake on the IPO are often not concerned about voting rights in any event.

Convertible securities and debt securities. Some companies choose to list debentures, bonds, sukuk, units in trusts, convertible notes (that is, debt instruments that convert to equity or may convert to equity at a future date) or asset-backed securities instead of equity securities. In the case of many of these instruments the company will be raising debt and not equity and the issuance will, as a result, show as a liability on the balance sheet and not as equity.

When the structure of the offering is considered, a decision is made with respect to what jurisdictions will be targeted. It is rare for an IPO to be restricted only to the jurisdiction where the exchange is located. More often investors in the region where the issuer will list and/or the region where the issuer is headquartered will be targeted. For example, if an issuer has its head office in Dubai but is present throughout the Middle East, a decision will often be made to seek investment from many of the jurisdictions in the GCC and North Africa.

The number of jurisdictions involved in the offering will in part be determined based on how much capital is sought to be raised. Each jurisdiction will add some complexity and some cost to the offering process as there will be regulatory obligations in each jurisdiction which will need to be met. Offerings in some jurisdictions will be much harder to achieve than others and those jurisdictions which are difficult are more likely to be excluded from the offering territories.

Finally, due to the extra-territorial reach of some of the US based authorities it is now common practice to ensure the US SEC obligations are met. This means that the offer will be either extended to all investors in the US or only to certain qualified investors, or formally exclude US persons.