What is an IPO? How does it work?

What is an IPO? How does it work?

An Initial Public Offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue, the best offering price, the amount of shares to be issued and the time to bring it to market. An IPO is also referred to as a Public Offering. When a company initiates the IPO process, a very specific set of events occurs. The chosen Underwriters facilitate all of these steps. An external IPO team is formed, consisting of an Underwriter, Lawyers, Certified Public Accountants (CPAs) and Securities and Exchange Commission (SEC) experts. Information regarding the company is compiled, including financial performance and expected future operations. This becomes part of the company prospectus, which is circulated for review. The audited financial statements are included in the prospectus. The company files its prospectus with the SEC and sets a date for the offering.
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