Page 149 - Initial Public Offering - An Introduction to IPO on Wall Street

The following are the details of the major participants in the IPO process and their specific
functions. By understanding the key participants or actors involved in an IPO and their specific
functions, you can better approach your IPO to ensure its success.

8.1 Stock Issuer
A stock issuer can be defined as:

“An organization that registers, distributes, and sells a security on the primary market.
19
An issuer can be a private company or a government .”
A company is deemed as an issue of a stock if it registers the stock with the SEC, underwrites
it, and preserves the earnings from its sale.

There are various reasons a company may choose to go public and issue stock.

In the decision to issue stocks, growth and reputation are essential considerations. Going public
also lowers capital costs and offers a major advantage in negotiating interest rates with
creditors. The provision of compensation to hire and retain workers is another justification for
issuing stock.

Another purpose of going public is to provide venture capitalists with an exit. Above all, stocks
are a preferred way of raising funds to support the business; this is the main reason most
businesses opt to go public and issue stock.

8.1.1 Identifying an Issuer of Stock/Securities
An issuer of securities is identified by the Uniform Securities Act as a legal entity that issues
and sells securities to generate revenue to finance operations. Corporate entities, investment
trusts, or a state body can be issuers of securities. The most important thing is that the
organization issuing the security/stock must benefit—directly or indirectly—from its sale. A
transaction where the company or individual selling a stock does not directly or indirectly gain
from the sale proceeds is referred to as a non-issuer transaction.

The following are some examples of non-issuer transactions:

 A stockbroker managing a buying order for XYZ Corp. stock
 An initial public offering (IPO) coordinated by a public relations company for XYZ Corp.
stock
 A securities solicitor who assists XYZ Corp. in registering its IPO

Compensation for each of these transactions would be paid to the concerned individuals.
However, the payment made to them would not come directly from the stock sale. Instead, the
payment would be made by the stock issuer through other means.
8.1.2 The Different Types of Stocks Issued
There are two major stock classifications: common and preferred. A shareholder is generally
entitled to dividends and voting rights at shareholder meetings when they hold common stock.
The board of directors may also be chosen by the holders of common stock. Moreover, high
levels of return on investment can be generated by common stock.

On the balance sheet of an organization, common stock is listed as stockholder equity. Common
shareholders are among the last to be compensated if an organization defaults or

19 https://financial-dictionary.thefreedictionary.com/Issuer

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