• Shahn Khan

What is an IPO (Initial Public Offering)?

Through an IPO, private new and medium-sized firms that are looking for funds to grow and expand their business becomes a public one by offering its stock for the first time on a public stock exchange to investors. The investors can be individuals or other companies.

The purpose of IPO is to increase long-term capital, greater access to cash, and improved liquidity for the company. It’s a lengthy process in which banks, underwriters, and lawyers will conduct an in-depth audit of the entire company, which is known as the due diligence process.

The investment bankers help and sets an agreed-upon offering price that determines the initial value of each share then IPO'ing company sells its shares on the stock market.

Few General Terms involved in IPO:

Primary market: It is the market in which investors have the first opportunity to buy a newly issued security as in an IPO.

Prospectus: A formal legal document describing the details of the company is created for a proposed IPO, also making the investors aware of the risks of an investment. It is also known as the offer document.

Over-Subscription: A situation in which the demand for shares offered in an IPO exceeds the number of shares issued.

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