Initial public offering (IPO) refers to the first-time sale of a company’s stock to the public. An IPO marks the beginning of a company’s trading on a stock market. Because an IPO transfers a company’s ownership to public investors, the company is said to have “gone public.”
When a firm decides to go public, it typically hires an investment bank to help with the process. The bank offers advice, assists in preparing a prospectus (printed statement) describing the company and the offering, and markets and distributes the shares to investors. Government regulators, such as the Securities and Exchange Commission in the United States, must approve the terms of the IPO. A company can use the money raised through its IPO to pay debts, to expand business operations, or both.
Companies going public attract much attention because many IPO’s rapidly increase in value once trading begins. Such IPO’s may be risky, however. In the 1990’s, for instance, many technology companies went public, and investors enthusiastically bought shares in them. But in the early 2000’s, many of these companies went bankrupt after spending the money raised by their IPO’s.
