IPO (initial public offering)

The process of issuing shares of a private firm to the public in a fresh stock issuance is known as an initial public offering. Initial public offerings allow firms to raise funds by selling shares on the primary market. Investment banks are hired by firms to market, evaluate demand, determine the IPO price and date, and other tasks. An initial public offering can be viewed as a way for founders of the company and early investors to benefit fully from their private funding.

IPO is divided into three words.

  • Initial - It means for the first time
  • Public - It includes retail investors, institutional investors, and other corporations
  • Offering - Wants to share the part of their profit

Initial Public Offering (IPO) is the open sale of shares issued by a company. Before an IPO, a company is private, even if it is incorporated and its capital is distributed between the founders and the first investors. As a result of an Initial Public Offering, anyone can become a shareholder of a company: any natural or legal person who bought shares. The sale of shares takes place on the stock exchange and is subject to strict rules of the financial regulator, which include, for example, the mandatory opening of financial statements, the formation of a board of directors, or a regular audit.

Investors make profits in several ways, the main of which are, firstly, the receipt of dividends, and secondly, the game on the stock exchange.

Why does a company offer an IPO?

  • Offering an IPO is a money-making exercise. Every company needs money, it maybe to expand, to improve their business, to better the infrastructure, to repay loans, etc
  • Trading stocks in the open market mean increased liquidity. It opens door to employee stock ownership plans like stock options and other compensation plans, which attracts the talents in the cream layer
  • A company going public means that the brand has gained enough success to get its name flashed in the stock exchanges. It is a matter of credibility and pride to any company
  • In a demanding market, a public company can always issue more stocks. This will pave the way to acquisitions and mergers as the stocks can be issued as a part of the deal
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