August 23, 2014

IPO explained

We often hear about an IPO and how the process can raise a great deal of capital, but what exactly is it? It stands for Initial Public Offering (IPO) and refers to the first time that the public can purchase shares in a company that was previously ‘private’.

A company may opt for an IPO because it allows them to raise a great deal of capital through the public. With an IPO, anyone can invest in the respective company via purchasing stocks on a stock exchange. Moreover, the founders of a company stand to gain large amounts from an IPO, because they have to give up some control of their company to the public, and for this they are reimbursed. There are other numerous benefits to an IPO as well such as the raised profile of a company.

But a public company also has a responsibility to make its accounts available to the public, which may be viewed as a negative by some.

The term IPO is often associated with an IPO listing and this simply refers to the process before an IPO is complete and when the respective company takes steps to sell shares on public stock markets. Usually, a company most commence an IPO listing prior to fully going public, and it is this process that provides a wealth of information about the company and is scrutinized by various regulators before the IPO commences.