IPO (Initial Public Offering), also known as Stock Market Launch, is a kind of public offering under which an individual company’s shares are traded to other institutional investors. These investors, in turn, sell the shares to the general public for exchange securities in first place. The process transforms a privately held company into an open company. The initial offerings from the public are used by the firm to increase the growth of capital to monetize the funds of private investors. It also aims to convert into a public traded enterprises.
A company that is selling shares is not required to repay the capital to their public investors. Once the shares are traded freely in the open market after the IPO, the money passes in between public investors. The process offers several advantages as well as a few shortcomings. The major benefits include the cost associated and the need to disclose information that proves to be helpful for the competitors. We can also call IPO process as going public.
The information of the proposed offers is revealed to the potent customers in a lengthy document called as a prospectus. Usually, the companies take up the process of IPO under the guidance of investment banking firms that act in the potential of an underwriter. Under-writers offer numerous services including correct assessment share value, establishing the public market for the stock, initial sale, etc.