IPO Basics

An Initial Public Offering (IPO) is when a company first sells shares of its stock to the public. Find out more about its meaning, benefits, and the rules that govern it.

The acronym IPO refers to Initial Public Offering. In an IPO, a company lists its shares in the primary market for public purchase for the first time. A primary market, also referred to as a new issue market, is an area where securities such as stocks and bonds are created or issued for direct sale by the owners and marketers, and subsequently traded in the secondary market.

Most of the time a business is taken public for these common reasons:

A business should go public for the following three reasons:

• A business owner or investor wishes to liquidate a considerable part and profit from the sale.
• A business seeks to acquire additional funds to scale operations by constructing new plants.
• A call for financing unpaid bills so as to clean the books of a company.

A company has different motives for issuing an IPO. Some of these reasons are listed below and explained in further detail:

1. Raising Capital

IPOs are often used as means to raise funds for further spending drives, debt repayment, or future investment drives. Businesses need some form of capital to help them function at every phase of their life cycle:

• Self Funded - Also known as the family and friends financing phase
• Angel Investors
• Venture Capitalist
• Private Equity Investors
• Bank Loan

2. Exit for Early Investors

An IPO can be done in two ways - by Fresh issue or an Offer for Sale (OFS) or a combination of both.

3. Business Expansion

For other projects as well as for business expansion a company needs capital.

4. Repayment of Loans

Some companies may take have larger amounts of loans. Paying the existing debt bore.

5. Improved Value

Launching into the documents of the stock, shares or partnerships of a company open to the public raises.