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IPO

An initial public offering (IPO) refers to the first sale of stock by a private company to the public. IPOs allow companies to raise capital from public investors in exchange for shares of the company. The capital raised in an IPO can be used by companies to fund expansion plans, repay debts, or for working capital. Once public, companies also have access to cheaper sources of future financing through secondary stock offerings or loans. However, going public also results in ongoing public disclosure requirements and costs associated with being a publicly traded company.

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649 views7 pages

IPO

An initial public offering (IPO) refers to the first sale of stock by a private company to the public. IPOs allow companies to raise capital from public investors in exchange for shares of the company. The capital raised in an IPO can be used by companies to fund expansion plans, repay debts, or for working capital. Once public, companies also have access to cheaper sources of future financing through secondary stock offerings or loans. However, going public also results in ongoing public disclosure requirements and costs associated with being a publicly traded company.

Uploaded by

Ashish Thakur
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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What Does Initial Public Offering - IPO Mean?

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market. Also referred to as a "public offering".

In 1602, the Dutch East India Company was the first company to issue stocks and bonds in the world in an initial public offering.

When a company lists its securities on a public exchange, the money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of investors to provide it with capital for future growth, repayment of debt or working capital. A company selling common shares is never required to repay the capital to investors. Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public.

Bolstering and diversifying equity base. Enabling cheaper access to capital. Exposure, prestige and public image. Attracting and retaining better management and employees through liquid equity participation. Facilitating acquisitions. Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc. Increased liquidity for equity holder

Significant legal, accounting and marketing costs. Ongoing requirement to disclose financial and business information. Meaningful time, effort and attention required of senior management. Risk that required funding will not be raised. Public dissemination of information which may be useful to competitors, suppliers and customers.

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