Short answer: An IPO is the process by which a private company becomes publicly traded by offering its shares to the general public for the first time and getting listed on a stock exchange. An OFS, or offer for sale, lets existing shareholders sell part of their holdings, so ownership passes from one holder to another and the company’s share capital does not increase.
Last reviewed: 4 November 2026
At a glance
| Feature | IPO | OFS |
|---|---|---|
| Main purpose | Raise fresh capital by issuing new shares | Let existing shareholders sell part of their holdings |
| Who receives the money | The company | The selling shareholders |
| Effect on share capital | Increases, because new shares are issued | Does not increase |
| Documents required | Red Herring Prospectus and extensive paperwork | No Red Herring Prospectus or comparable extensive documentation |
| Changing a bid | Cannot be changed or cancelled once submitted | Can be adjusted, but cannot be cancelled |
What does an IPO do?
An IPO is the first time a company’s shares are offered to the public. A company that has been privately held, with shares owned by founders and a limited circle of investors, becomes a listed company whose shares can be bought and sold on a stock exchange.
The main purpose of an IPO is to raise fresh capital. The company issues new shares and the investors who buy them pay the company for those shares. The company’s share capital rises as a result.
What does an OFS do?
An OFS is a sale of shares that already exist. Existing shareholders, such as promoters or early investors, sell part of their holdings to investors. Ownership moves from one holder to another.
Because no new shares are created, the company’s share capital stays the same. An OFS is therefore a change in who owns the shares, not a change in how many shares the company has issued.
Where does the money go?
In an IPO, the money raised from the issue goes to the company. That is the reason for the issue: the company gets capital it did not have before.
In an OFS, the sale proceeds go to the selling shareholders rather than to the company itself. The company does not receive the cash.
Here is a hypothetical example, with invented figures for illustration only. Suppose a company issues 10 lakh new shares at Rs 100 each in an IPO. The company receives 10 lakh multiplied by Rs 100, which is Rs 10 crore, and its total share count goes up by 10 lakh.
Now suppose, in a separate hypothetical case, that a shareholder sells 10 lakh existing shares at Rs 100 each in an OFS. The seller receives Rs 10 crore. The company receives nothing, and its total share count stays the same.
Why does the paperwork differ?
An IPO requires filing a Red Herring Prospectus, which is the preliminary offer document submitted to regulators before the issue opens, along with extensive paperwork. This is because the company is inviting the general public to buy newly issued shares for the first time, and regulators expect detailed disclosure about the business.
An OFS needs no Red Herring Prospectus or comparable extensive documentation. The shares already exist and are already traded, so the process is lighter. This does not mean an OFS carries no risk. It means the documentation burden is different.
What happens to a bid?
Bidding rules differ in one important way. Once an IPO bid is submitted, it cannot be changed or cancelled. An investor who bids in an IPO is committed to that bid, whatever happens to the market before allotment.
In an OFS, an investor may adjust the bid but cannot cancel it. The flexibility is limited to changing the bid, not withdrawing from it.
What are the catches?
The most common misreading is treating an OFS as a sign of fresh money entering the company. An OFS brings no new capital to the company, so the proceeds do not fund its operations or expansion. The money goes to the people who sold their shares.
For an IPO, the catch is commitment. Because the bid cannot be changed or cancelled once submitted, the investor has no way to withdraw after the bid is in. Both processes involve information that should be read carefully before any bid is placed, and the documents are the place to check the details of each offer.
Frequently asked questions
Does an OFS put new money into the company?
No. The sale proceeds go to the selling shareholders, and the company’s share capital does not increase.
Can an investor cancel a bid in an OFS?
An investor may adjust the bid but cannot cancel it.
Why is an IPO bid described as locked in?
Once an IPO bid is submitted, it cannot be changed or cancelled.
Does an OFS need a Red Herring Prospectus?
No. An OFS needs no Red Herring Prospectus or comparable extensive documentation.
Sources and last check
Facts in this article were checked against the sources below on 4 November 2026. Rules and figures can change; check the primary source before acting.
- groww.in (broker education)
- kotakneo.com (broker education)
- upstox.com (broker education)
- zerodha.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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