What is IPO ?

Definition :- IPO (Initial Public Offering) is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public. Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.

Description :- A company offering its shares to the public is not obliged to repay the capital to public investors. The company which offers its shares, known as an 'issuer', does so with the help of investment banks. After IPO, the company's shares are traded in an open market. Those shares can be further sold by investors through secondary market trading.

Advantages :- The primary objective of an IPO is usually to raise capital for a business. However, a public offering has other benefits as well. A public company can raise additional funds in the future through secondary offerings because it already has access to the public markets through the IPO. Many companies will compensate executives or other employees through stock compensation. Stock in a public company is more attractive to potential employees because shares can be sold more easily. Being a public company may help a company recruit better talent. Merger and acquisition activity may be easier for a public company that can use its shares to acquire another firm. Similarly, it is easier to establish the value of an acquisition target if it has publicly listed shares. Some companies will conduct an IPO because of the prestige and credibility it imbues. This may be a factor for future lenders who might be more willing to make loans at more favourable terms if they know the company has a diversified shareholder base and is accountable to the SEC for accurate financial reporting. However, the real value of intangible advantages like prestige is difficult to measure.