Initial Public Offering (IPO) represents a significant step for a private company seeking to offer its shares to the general public. The IPO process brings numerous benefits, such as enhancing the company’s access to capital, elevating its profile, and providing liquidity to shareholders.
However, before a company can proceed with an IPO, several conditions must be met. In this article, we will discuss five crucial requirements that companies must fulfill before embarking on the IPO process.
Initial Public Offering (IPO), also known as the initial public offering, refers to the situation where a company first sells shares to the public. The phenomenon of IPO is commonplace in the stock market worldwide. This approach yields benefits for both parties, with companies gaining additional funds while the public can profit from capital gains or dividends.
Before reaching this stage, a company must meet certain requirements related to the IPO process. If a company still maintains private or limited entity status, meaning its shares are controlled by limited parties such as founders, CEOs, or close family members, the primary goal underlying the decision to undergo an IPO is to secure additional funding. Once shares are open to the public, a reputable company will attract interest from investors looking to invest in its shares.
IPO Requirements
The Indonesia Stock Exchange (IDX) sets criteria that companies planning an Initial Public Offering (IPO) must meet to ensure the readiness and responsibility of the company in taking this step.
If your company falls into the small issuer category, the amount of funds that can be raised through IPO will be limited to Rp50 billion. For medium-scale companies, the maximum limit of funds that can be obtained is Rp250 billion.
Here is an overview of the IPO conditions established by the Indonesia Stock Exchange (IDX):
- Stable Financial ConditionThe first requirement a company must meet before an IPO is having a stable and robust financial condition. As a prospective issuer, the company must demonstrate good and consistent financial performance over the past few years.
Prospective investors will likely be more interested in investing in a company with positive revenue growth, good profitability, and sufficient liquidity. Additionally, the company must have transparent and reliable financial statements prepared in accordance with applicable accounting standards.
- Clear and Organized Company StructureBefore conducting an IPO, a company must have a clear and organized structure, including share ownership, company management, and relationships with minority shareholders.
The company must adhere to good corporate governance practices compatible with the regulations in the capital market. A clear and transparent structure will instill confidence in prospective investors about how the company is managed and how the interests of shareholders will be protected.
- Compliance with Capital Market RegulationsThe IPO process involves strict regulations and rules of the capital market. Before an IPO, the company must ensure compliance with all legal requirements and regulations. This includes preparing prospectus documents, notifying supervisory authorities, and obtaining approval from the stock exchange where the shares will be listed. The company must also follow the procedures and timelines set by the capital market supervisory authority to ensure a smooth IPO process.
- Readiness for High Transparency and AccountabilityAs a publicly listed company, transparency and accountability are crucial. The company must be prepared to provide relevant and accurate information to the public, including periodic financial reports, business projections, and significant events that may affect the company’s performance.
Shareholders and potential investors expect a high level of transparency to make informed investment decisions, and honest information builds trust with shareholders.
- Competent Management TeamA company planning an IPO must have a competent and experienced management team. A good and integrity-driven management team will instill confidence in prospective investors that the company is well-managed and can achieve its business goals.
Additionally, a reliable management team will be able to face challenges that may arise after the IPO and take strategic steps for long-term growth and success.
In the journey toward an Initial Public Offering (IPO), meeting these five outlined conditions becomes a crucial step for the company. The success of an IPO depends on the company’s readiness and quality in meeting the requirements of stable financial conditions, transparent company structure, compliance with capital market regulations, high transparency levels, and the presence of a competent management team.
By adhering to these requirements, a company not only faces the opportunity to raise additional capital through share offerings but also opens the door to expansion, growth, and exploring new opportunities in the world of the capital market.
