What Is an Initial Public Offering (IPO)?

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering.

Key Takeaways

• An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.
• Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an initial public offering (IPO).
• IPOs provide companies with an opportunity to obtain capital by offering shares through the primary market.
• Companies hire investment banks to market, gauge demand, set the IPO price and date, and more.
• An IPO can be seen as an exit strategy for the company’s founders and early investors, realizing the full profit from their private investment.