Differences between OFS and IPO in stock market
Aug 25, 2020

Differences between OFS and IPO in stock market

OFS is a process through which promoters of listed companies can sell their shares at the exchange. On the other hand companies release IPOs when they want to get listed on the exchange and raise additional capital for growth and expansion needs. If you are not sure about the different properties of OFS or IPO please read the following first:

Once you have the basic understanding of OFS and IPO, go through the distinguishing features between OFS vs IPO.

Characteristics OFS IPO
Full Form The full form of OFS is “Offer for Sale”. The full form of IPO is “Initial Public Offering”.
Objective OFS is a transparent and convenient means to reduce the holdings of shareholders owning more than 10 per cent stocks of the company. Companies release IPOs when they want to get listed on the exchange and raise additional capital for growth and expansion needs.
Regulations OFS issuing companies need to inform the exchange about their intention two working days prior to the stake release. Initiation of IPOs is a lengthy process. It requires the appointment of an investment bank to carry out the underwriting procedure, the drafting of a prospectus, and finally the registration with the SEBI.
Cost Involved Promoters incur minimal charges while issuing an OFS. Introduction of the IPO is a costly affair as interested companies need to allocate funds for advertisements to spread the news. Moreover, firms also incur expenditure in appointing an underwriter and other SEBI formalities.
Allotment Before the release of the OFS, companies decide the floor price of the stocks. Investors need to bid at or above the given rate to purchase the shares. If they offer an amount lower than the floor price, then they would get automatically rejected. In the IPO, the investment bank set the price band for the shares. Investors purchase the stocks on a pro-rata basis or through an automated lottery if there is an oversubscription for the same.
Balance Sheet of Firms The OFS does not produce any change on the balance sheet of the companies as no additional capital is generated through this process. The IPO enhance the in-hand capital of firms through the release of shares. They can utilise the fund for developing the infrastructure or paying off debts.

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