Posted on January 31, by Dili. Initial Public Offering IPO and Follow-on Public Offering FPO are two widely used investment terms. Both IPO and FPO are conducted via a stock exchange, which is a market in which securities are bought and sold.

The key difference between an IPO and FPO is that an IPO occurs when a company offers its shares to the public investors for the first time by listing the company in a stock exchange. A Follow-on Public Offering FPO is referred to the subsequent issue of shares of an already listed company. The main reason that companies decide to consider an IPO is to gain access to further capital by offering shares to a large pool of investors.

All businesses start as small-scale private ones utilizing personal or family wealth and funding options such as loan capital, business angels, and venture capital firms.

However, the amount of funds that can be accumulated through the said methods are often limited and will not be sufficient if the business objective is to pursue rapid growth.

The business may decide to go public when the above-mentioned financing options are insufficient,.

Difference Between FPO and IPO | Difference Between

Furthermore, an IPO serves as an exit strategy when business angels or venture capital firms are involved since these type of investors are interested in participating only until the business is successfully established. Once this is done, business angels or venture capital firms often seek to sell their stake in the business to other interested parties. In some cases, even the founders of the company may be willing to exert an exit strategy.

Thus, an IPO can be based on the requirements of many stakeholders.

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There are many legal implications and significant legal costs involved with an IPO. The activities of listed companies are scrutinized by the Securities and Exchange Commission SEC and the company is bound by a number of rules and regulations and reporting requirements followed by the IPO.

The main objective of reporting requirements is to make sure that the shareholders and the markets are kept informed on a regular basis. Due to the above complications, some of the most successful companies in the world such as Dell, PriceWaterhouseCoopers, and Mars remain private.

An issue of shares can be done secondarily and further subsequently depending on the requirements of the company. There are two types of FPOs.

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In a dilutive FPO, the company decides to increase the number of shares exchanged in the stock market in order to allow a rapid flow of funds within a relatively short period of time. This is commonly done when additional funds are needed for a special project. A dilution of control may occur as a result of a dilutive FPO.

Here, the shareholders sell privately held shares in the stock market without company issuing additional shares. No dilution of control occurs as a result of this type of FPO.

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Dili has a professional qualification in Management and Financial Accounting. Her areas of interests include Research Methods, Marketing, Management Accounting and Financial Accounting, Fashion and Travel.

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Initial Public Offering IPO occurs when a company is offering shares to the public for the first time. The company is privately owned at the time of the IPO. An FPO is done by a publicly listed company. IPOs have extremely stringent regulatory requirements which are costly and time-consuming. FPOs have lesser regulation, cost and less time-consuming compared to IPO. High risk is involved.

Relatively low risk is involved compared to an IPO.