What is an initial public offering (IPO)?

Initial public offering, also known asIPO orpublic share issuance,is a way of raising capital from public investors.

Definition

An initial public offering is the process of offering shares of a private corporation to the public in a new stock issuance. Public investors include individuals and institutional investors. Through this process, private companies will be transformed into listed companies.

After going public, private investors will be able to fully realize gains from their investment as it usually includes premiums for current private investors. It also allows public investors to take part in the offering.

After the initial public offering, the company's shares will be tradedfreelyon the open market, and the funds will flow among public investorsonly.

Although an initial public offering hasmany advantages, its shortcomings can not be ignored. An IPO is expensive, and the costs of maintaining a public company are ongoing, also unrelated to the other costs of doing business. Moreover, the company becomes required to disclose financial information, this information might help competitors.