To start business, company needs capital. A private company collects capital privately however; a public company makes an appeal to public to purchase the shares of the company. When company collects required capital, then only it can purchase property and assets. Therefore raising the funds initially becomes an important factor for a company. The shares offered to public in the beginning are called ‘Initial Public Offer (IPO)’. It is done by issuing prospectus.

The securities Exchange Board of India (SEBI) have a strict control over the initial public offer issue. It has laid down the gridlines for the companies to issue shares in such a way and the company has to follow the guidelines.