Known as underwriting, the process in which someone starts up stocks for their business can be a difficult one. This process, though, will take a company that was once privately owned and turn it into a publicly owned corporation that can have its shares of the company put up for sale. These stocks will then generate income for the company and allow it to invest further in its development.

Going Public

It might seem alluring to sell the stocks of your company by yourself; however, this is asking for disaster. It is best to hire an investment bank to take care of all the paperwork that comes with selling stock, making sure it transfers properly. Meeting with this investment bank is one of the tricky parts. You are looking for one that fits your style. Some of the top investment banks are Goldman Sachs, Merrill Lynch and Morgan Stanley. During this meeting, the bank will give you one of two options on how it is going to sell the stock. The first is known as a firm commitment. This means that the bank will guarantee the sale of a certain number of shares. The other is known as a best-efforts guarantee. The bank will do its best to sell the stock for you, but makes no guarantees. Unless the bank is certain your company is going to be great, it usually offers the latter. Because the Securities and Exchange Commission is going to need paperwork, the next step requires the bank sending in your registration. This registration includes information about who you are, your management style, any financial holdings, what the money will be used for, any legal problems and insider holdings. The more information that you provide to the SEC, the faster the registration will go. While the SEC is working through your registration, begin going around to different big ticket investors to gain their support. You are looking to gain as much support as possible, so that when the stock is released there are lots of people buying the stock. This will, in turn, almost guarantee a higher price for the share. That, in turn, results in more money. Finally, meet with the bank one last time to discuss a price for the share. The bank will have the best idea of selling price based on the current market. Since both you and the bank are looking to make as much money as possible, the bank will give what they will feel is going to bring in the most money at the right price. When the stock is released, observe it. Now that the company is public, there will be a period of consistent appeasement to the investors. If the earnings are bad, investors might pull away. If earnings are good, though, investors will continue investing more.

Source:

Investopedia: Underwriting

Investopedia: IPO Basics: Getting In On An IPO