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The contract being the fundamental element in all the business transaction, this article shall dwell upon the various contracts entered into by the Lead Manger in the process of conducting the Initial public offering of a company. For understanding the same, the article shall also throw light on the process of Initial Public Offering and the Roles and responsibilities of the Lead Mangers in the IPO process.


The decision to take a company public is not an easy one. An initial public offering (IPO) is the first public offering of a organisation’s stock and its subsequent listing in the share market. It helps a company to acquire sources to fund the business and to expand its operations by issuing new shares and selling existing shares.

An initial public offering (IPO) is when a privately held company seeks to sell its shares on a public market (IPO). Going public is a life-changing move that alters the way a corporation operates for the rest of its existence. Going public is a time-consuming process that comes with its own set of challenges for which a business should be prepared.

The primary /new issue market changed quick after mid 80’s. the new issue market action was managed by the regulator of capital issues under the arrangements of the capital issues (control) act 1947 with the repulse of the demonstration and the ensuing annulment of the workplace of the CCI in 1992, the insurance of the premium of the financial backers in protections markets and advancement of the turn of events and guideline of the business sectors movement become the obligation of the SEBI.[1]

An IPO is a life-changing event for every corporation, and it must be prepared to deal with the additional demands that come with being a public company. While a public corporation is subject to more public oversight and legislation, it often has access to more, and sometimes deeper, capital sources.

While going public to the world can give more noteworthy admittance to sources of capital, it likewise accompanies huge duties, incorporating offering corporate control to investors, expanded corporate administration. There likewise are huge immediate and roundabout expenses related with the IPO cycle and progressing (future) announcing necessities. There also are significant direct and indirect costs associated with the IPO process and ongoing (future) reporting requirements[2]. The initial financial costs (also called flotation costs) of going public can be very high and include both indirect and direct costs.

Direct financial expenses incorporate expenses related with setting up the enlistment articulation and plan (the executives, lawful, and bookkeeping charges), guaranteeing spread (i.e., distinction between what the guarantor pays for the offers and the sum at which the offers are sold), the expense of building up a public picture for the organization, and continuous detailing costs. The biggest introductory expense in an IPO is the guarantor’s expense or bonus (i.e., spread), which for the most part is expressed as a level of the contribution cost

Frequently ignored in arranging an IPO is the expense related with building up a public picture for the organization. A positive picture (with stockbrokers, the monetary press, monetary investigators, and so forth) can upgrade the underlying deals exertion and keep up financial backer premium in the stock after the IPO. Building up a picture can require months or even a very long time to achieve and may require employing an advertising firm well ahead of the public contribution

Alternate ways an organization can upgrade its public picture incorporate adding investigators and business press editors to its mailing records, taking an interest in career expos and gatherings that are gone to by experts, and publicizing key representative arrangements. Clearly, these strategies include an expense.[3]

On the other hand, the disadvantages of this is that, time-consuming tasks particularly the investor relations and it calls for a greater transparency and disclosure requirements. Moreover, it also creates Add-on costs associated with the ongoing requirements as listed company and shall increase the compliances under the Corporate governance rules and regulations. Moreover, it’s possible that the company’s owners won’t be able to take many shares for themselves. The investors may expect them to return the entirety of the cash to the business sometimes. Also, in the event that they take their offers, it’s conceivable that they will not have the option to sell them for a long time. This is on the grounds that selling huge squares of stock could hurt the stock cost. investors will decipher this as an absence of confidence in the business.

Going public with the company increases the company’s and its executives’ possible responsibility for mismanagement. A public corporation is legally required to draw on shareholder gains and disclose operating details to its shareholders. Self-dealing, making material misrepresentations to shareholders, and omitting facts that the the centralized securities laws require to be disclosed and corporation and its management should know about are all possible charges.


An initial public offering (IPO) can be a superior route and strategic choice for private companies seeking to raise capital and provide exits for their shareholders. It can also be a superior route and strategic option for private companies seeking to finance growth and access deep pools of liquidity. Although difficult markets will ebb and flow, businesses that are completely prepared will be able to build value and fully exploit the IPO windows of opportunity[4].

The business going public appoints lead managers, who are independent financial institutions. To control large IPOs, companies name several lead managers. Their primary responsibilities include initiating the IPO process, assisting the company with road shows, drafting an offer document and having it approved by SEBI and stock exchanges, and assisting the company with stock market listing.

To decide the objective is the most vital thought for any business endeavor. The lead managers take up the bludgeons in soothing of torments of their corporate customers by defining up the business objective, in arranging procedures to accomplish the objective and furthermore proposing the future development way of these substances. For the most part, the size of the association and the size of activity are the determinants of the hierarchical objective. In this viewpoint, certain elements are to be basically thought of and assessed by I the vendor financiers in making their esteemed decisions.

The concept of lead managers began through the entering of London dealers in financing unfamiliar exchange through acknowledgment of bill later, the shippers helped the public authority of immature nations in raising long haul assets through buoyancy of securities in London currency market, over a period they stretched out their exercises to homegrown business of partnership of long haul and transient money endorsing of new issues, going about as arranging specialists for consolidations, take over and so on the post war period saw the quick development of trader banking through the creative instrument like Eurodollar and the development of different monetary centre like Singapore, Hong kong and so forth.

No lead manager other than bank/public monetary foundation is allowed to carry on business other than that in the protections market.[5] All in all, he is restricted from continuing assets/resources-based business-like driving, etc. Anyway, a vendor broker who is enlisted with RBI as essential seller/satellite vendor may continue such business as might be allowed by the RBI.

Each lead manager needs to go into an agreement with the responsible organizations setting out their common right liabilities and commitments identifying with such issues and in points of interest to divulgence allocation and discounts. An assertion explicit these is to be outfitted to SEBI at any rate multi month before the launch of the issue for membership. A pioneer dealer financier can’t manage an issue if the responsible organization is its partner. He can likewise not partner with a dealer investor who doesn’t hold a testament of enrollment with the SEBI. It fundamental for the lead trough to acknowledge a base guaranteeing commitment of 5% of the all-out endorsing responsibility or 25 lakh, whichever is lesser. On the off chance that he can’t do so he needs to make courses of action for endorsing an equivalent sum by a trader investor partner with that issue under intimate to the SEBI.

The lead manager’s job begins with determining a client’s fund specifications and continues until the full subscription is issued. When a book is being built, the lead manager also assists in deciding the price band; in this case, they are known as Book Running Lead Managers. They are also responsible for post-issue activities such as allotment notification and refunds.

Any lead manager must enter into a contract with the issuing companies outlining their joint rights, responsibilities, and obligations in relation to certain issues, specifically disclosures, allotment, and refund. A statement detailing these is sent to the Security Exchange Board of India at least one month prior to the issue’s subscription launch. If there are several lead managers, the statement must provide information about their respective roles[6]. If the issuing company is an associate of the lead merchant banker, he will be unable to handle the problem. He also cannot work with a merchant banker who does not have a SEBI certificate of registration. A lead manager needs to practice due care and steadiness in the check of outline or letter of offer. If there should arise an occurrence of any ideas or alteration given by the SEBI he needs to guarantee that they are appropriately joined in the proper zones.

Furthermore, the lead manager is in charge of verifying the contents of a prospectus/letter of offer in relation to a subject, as well as the reasonableness of the views expressed therein. He must send a due diligence certificate to the Security Exchange Board of India at least two weeks prior to the opening of the issue for subscription, stating that they are in compliance with the documents/materials and papers relevant to the issue.[7] All, legal requirements relating to the issue have been met, and the disclosures are accurate, fair, and sufficient to allow investors to make an informed decision about investing in the proposed issue.

The due diligence declaration need to rate that the plan or letter of offer is in congruity with the reports pertinent to the issue the revelation are genuine reasonable and satisfactory and all legitimate necessities associated with the issue have been properly consented to  Each lead director needs to present all the specific of an issue, draft outline or letter of offer and so forth to the SEBI in any event fourteen days before the date of loading up with the enlistment center of organizations or provincial stock trade or both.

Accordingly, at least two weeks before the date of filing with the registrar of companies/regional stock exchanges or both, the lead managers of an issue must send to the SEBI the specifics of the issue, draught prospectus/letter of bid, other literature to be circulated to investors/shareholders, and so on.

They must ensure that the changes/suggestions they make to the information to be provided to investors are properly implemented. They must stay concerned with the issues until the subscribers have obtained their share/debenture certificates or the excess application money has been refunded.

The lead manager of the Company, along with the MD of the recognised stock exchange, is responsible for ensuring that the basis of allotment is finalised in a reasonable and proper manner in compliance with Regulation 49 of the ICDR Regulations. The minimum allotment size for such shares should be equal to the minimum application size as defined and disclosed in the offer document

Share Subscription Agreement

One of the Major documents that plays a vital role in Initial public offering is the share subscriptions agreement which is prepared of by the lead manager who is managing the Initial public offers of the particular company.

A subscription agreement is a formal arrangement between the Initial public offering (IPO) Company and the investor to buy the shares of the company at an agreed price. The subscription agreement keeps track of the outstanding shares and the ownership details of the shareholder. This agreement plays a vital role when the company goes in for a merger or acquisition in order to buy out the shareholders if necessary[8]. Now-a-days these agreements ae being given in a digital format for the purpose of tracking conveniences.

The three fundamental elements of a subscription agreement are to:

  • layout every one of the conditions of the protections offering and impart to the financial backer;
  •  emphasize language frequently included in a private position notice, to be specific danger factors relating to the genuine chance that the financial backer will lose the entirety of its cash on the proposed venture; and
  • move title of the subject organization protections (units, share, and so on) from the organization to the financial backer

The subscription agreement usually starts with an amazingly unmistakable warning in a striking, all promoted square of disclaimer language. That block usually presents state explicit disclaimers in regards to the idea of the share offering, and any exemptions and exceptions that doesn’t fall within the purview of the contract. These centre disclaimers are intended to quickly tell the securities authority that this is a private protection offering, which has not been enrolled with any security authority or organization, and accordingly conveys certain huge limitations.

Another essential feature of the agreement is that it recognises the form of partnership that occurs between the company and the investor. This section clarifies that the investment relationship is not binding unless and until the company manager accepts the subscription agreement on the company’s behalf, which approval is solely at the discretion of the manager. The investor is bound by the subscription agreement and, in many cases, by the business operating agreement or shareholder agreement until the company approves the agreement.

Issue Management

The management of corporate assets such as preferred shares, preference shares, debentures, and bonds is referred to as issue management. It entails the marketing of new capital issues, as well as existing companies’ rights issues and share dilution through letter of offer. Other concerns are involved in the issue’s management.

Merchant bankers advise on the size and timing of the public offering based on market conditions. In addition, merchant bankers assist corporate units in creating a sound capital structure that is appropriate to financial institutions, as well as assessing the quantum and conditions of public offerings of various types of securities[9].

They also inform the issuing company on whether to go with a new issue, a bonus issue, a correct issue, or a variation of these. In summary, handling public issues is a difficult and technical task. It involves various key choices just as the collaboration of various offices. Different departments are engaged with the administration of public concerns. i.e., under scholars, representatives, financiers, promoting offices, printers, evaluators, lawful consultants, enlistment center to the issue and shipper investors offering particular types of assistance to make the issue a triumph.

The apex entity, however, is the merchant bank, which prepares, coordinates, and manages the entire issue operation and guides various agencies to contribute to the effective marketing of securities.

Due Diligence process in the Initial Public offering:

When a Lead Manager is appointed for the Initial public offering process, that person handles the due diligence process for going public and complies with various requirements of the SEBI and the Companies Act[10]. A definite due diligence will convey bits of knowledge into the manageability of the organization’s plan of action. The interaction ought to likewise survey the serious scene, dig in the chances accessible in the up-and-downs in industry and completely evaluate the potential danger the up-and-downs may reality by opening up to the world or along the cycle

While investigative due diligence is an integral aspect of any major deal, the primary goals and objective of pre-IPO investigative due diligence are;[11]

  • to ensure that the offering documents contain all material details about the issuer and its financial condition, and that no important information is omitted.
    • To gain a better understanding of the issuer and to recognise potential risks at the earliest.

Many IPO-bound businesses plan and implement a dual-track strategy to be completely prepared for a trade sale as a Plan B to the IPO in today’s volatile capital markets climate. Value-driven vendor due diligence is a crucial success factor for a dualtrack strategy. PE investors and strategic investors interested in merging the business with their own may be potential buyers, depending on the type of business being sold.

This means that the VDD process must take into account the various knowledge requirements of these two investor classes in order to plan for all of the possible viewpoints investors might take when conducting buy-side due diligence.

All concerns that are likely to emerge from various buyer due diligence processes will be addressed by Value-driven vendor at a time when the process is still under the full control of the vendor/seller. As a result, there will be fewer surprises in the sales phase, and the vendor will be able to operate the process effectively and generate the maximum possible value at the end.


The market’s number of issued stocks can be a good indicator of the economy’s health. A decrease could indicate a recession, while a rise could indicate an economic upswing. Therefore, going public doesn’t only amount to lot of liabilities and risk but also attracts a lot of investment and compliance liabilities on part of the Lead manager.

[1] Prof. Shailendra Singh Bhadouria, Merchant Banking, Indira Gandhi National Tribal University (2018)

[2] IPO Investing, Ministry of Corporate Affairs, (2019),

[3] ISSUE OF EQUITY SHARES, , (last visited Apr 8, 2021

[4] Pre-issue obligations, (last visited Apr 8, 2021).

[5] Mr.P.Tamilselvan, Merchant Banking And Financial Services, (2015)

[6] I.P.O.’S (Intial Public Officer) | Shares | Areas of Law | Law Library | AdvocateKhoj, , (last visited Apr 8, 2021).

[7] CHAPTER V, , (last visited Apr 8, 2021).

[8] Supra.

[9] issue management – Ms Shradha Preface The financial services sector is an important constituent of the financial system and plays a significant role in | Course Hero, , (last visited Apr 8, 2021).

[10] Companies Act, 2013

[11] merchant-bank.pdf, , (last visited Apr 8, 2021).

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