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The ABCs of IPOs

Financing, or underwriting as it is sometimes called, is the process by which a company or government raises capital either publicly or privately. For corporations, this can be accomplished by an Initial Public Offering or IPO.

An IPO is created when a company requires financing that simply cannot be arranged privately. The IPO demands a great deal of finesse by the underwriter, since the company seeking financing is relying on the expertise and advice of the investment dealer in providing funding. How the issue is handled can affect the financial well-being of the company for years to come. It is important that the investment dealer be competent, imaginative, thorough and diligent in the preparation of the official financing documents as well as in the marketing of the issue.

Securities acts regulate the manner in which securities may be sold, and, among other things, require that whenever a new issue of securities is to be offered to the public in the province, a prospectus must be prepared in accordance with the requirements of the particular provincial act. It must also be accepted for filing by the provincial securities commission.

The basic principle governing prospectus requirements is that "full, true and plain disclosure of all material facts relating to the securities offered" must be made in the prospectus. In no way does the prospectus imply that any government body has approved the issue as constituting a suitable or an attractive investment; the prospectus is designed only to enable the prospective investor to make an intelligent decision.

It's important that you request a copy of the preliminary prospectus for an IPO and read it carefully prior to making any investment decisions.



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