Initial public offering or stock market launch is a type of public offering in which shares of a company usually are sold to institutional investors that in turn, sell to the general public, on a securities exchange, for the first time.
Institutional investor is a term for entities which pool money to purchase securities, real property, and other investment assets or originate loans.
Initial public offerings, or IPOs, explained by paddy hirsch
Through this process, a privately held company transforms into a public company.
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the company's stock is offered, owned and traded or exchanged privately.
A public, publicly traded, publicly held company, or public corporation is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets.
How an Initial Public Offering (IPO) Works by Zions TV
Initial public offerings are mostly used by companies to raise the expansion of capital, possibly to monetize the investments of early private investors, and to become publicly traded enterprises.
Monetization is the process of converting or establishing something into legal tender.
A company selling shares is never required to repay the capital to its public investors.
After the IPO, when shares trade freely in the open market, money passes between public investors.
Although IPO offers many advantages, there are also significant disadvantages, chief among these are the costs associated with the process and the requirement to disclose certain information that could prove helpful to competitors.
The IPO process is colloquially known as going public.
Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus.
Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter.
Underwriting services are provided by some large specialist financial institutions, such as banks, insurance or investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee.
An investment bank is typically a private company that provides various financial-related and other services to individuals, corporations, and governments such as raising financial capital by underwriting or acting as the client's agent in the issuance of securities.
Underwriters provide several services, including help with correctly assessing the value of shares and establishing a public market for shares.
Alternative methods such as the dutch auction have also been explored.
A Dutch auction is a type of auction in which the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price is reached.
In terms of size and public participation, the most notable example of this method is the Google IPO.
Google is an American multinational technology company specializing in Internet-related services and products that include online advertising technologies, search, cloud computing, and software.
This article explores the history of Google, the most widely used web-based search engine.
China has recently emerged as a major IPO market, with several of the largest IPOs taking place in that country.