Initial Public Offering (IPO)
Updated on March 13, 2023
IPO is a process by which a ‘privately’ owned company can become ‘public’ by selling its shares to the general public and diluting its ownership. It can be a new, newly formed or old business entity which till now existed as a private company. Generally, when a company is set up as a privately managed firm, its shares or ‘parts’ are held by the owners, close family members, friends, other investors, financiers, private entities or venture capitalists. Through the IPO, these shares are offered to common investors who can buy a stake in the business.
Important points to note about an IPO
The company that offers its shares is known as the ‘issuer’ and the IPO is brought in the primary market. After the IPO, the shares of the company are listed on the stock exchange and can be freely traded in the secondary market. When well-known companies announce an IPO, investors have an opportunity to buy its shares at a low price. The share price can increase rapidly once the company’s shares reach the secondary market. (or vice-versa)
What are the benefits of an IPO?
An IPO has benefits for both the company and the investor.
To the Company (issuer)
1. Capital availability
2. Business expansion
To the investor
1. Listing gains
2. Dividend income and capital appreciation post listing