What Is an IPO? Meaning, Process, Types

What Is an IPO: Have you ever wondered how a company that you love, like a popular tech startup or a big retail chain, starts selling its shares to the public? This entire procedure is known as an Initial Public Offering, or IPO. In simple terms, IPO is the moment a private business decides to go public and allows general investors to buy a piece of its ownership for the very first time. 

The main goal is to raise a large amount of money for business growth. Understanding this important step is necessary for anyone interested in the financial markets. .

Stock Market for Beginners Courses

What Is an IPO?

An Initial Public Offering is a special event where a company makes its stock available for the general public to purchase. Before an IPO, a company is considered private meaning its shares are only owned by a small group of founders, family and early investors.

When a company goes through this offering it sells a part of its ownership to thousands of investors. Once the IPO is complete, the company shares are listed on a stock exchange like the NSE or BSE in India and can be traded freely. This transformation from a private entity to a publicly traded company is a major milestone.

Stock Market for Beginners Courses

IPO Full Form

The full name for IPO is Initial Public Offering.

• Initial means first. It is the first time the company shares are sold to the public.

• Public means that the shares are available for the general public and institutions to buy.

• Offering refers to the act of selling these shares.

Process of IPO, How a Company Goes Public?

Taking an organization from private to public is a detailed procedure that involves several steps:

1. Hiring an Investment Banker: The company chooses an underwriter or an investment bank, to help manage the entire procedure.

2. Registration and Filing: The firm, along with its bank, prepares a detailed document called the Red Herring Prospectus.This document which contains all important financial information is filed with the regulator.

3. Pricing the Shares: The investment bank and the company work together to set a price or a price range for each share. This is a crucial part of the method.

4. The Offering: The company shares are then sold to the public through a stock exchange. Once this is complete the shares are listed and can be traded openly.

Types of IPO

Initial Public Offerings can be primarily categorized based on the method used to determine the price of the shares:

Stock Market for Beginners Courses

Advantages of IPO for Company

A successful Initial Public Offering provides many upsides to the business launching it:

• Capital Generation: It allows the business to raise massive amounts of funds for future initiatives, debt repayment, or expansion.

• Increased Visibility: Becoming public increases the company profile and reputation, which can help it gain customer trust and make better deals.

• Attracting Talent: Shares can be used to compensate and retain top employees.

• Exit Strategy: It provides an opportunity for original investors to sell their shares and make profits from their earlier investment.

Difference Between IPO and FPO

Another term often heard alongside IPO is FPO. Here is a comparison for your reference: