What is an Initial Public Offering (IPO)?
A Brief Explanation of an Initial Public Offering (IPO) | Definition
An initial public offering, or IPO, is a stock market launch. The launch offers the shares of a company to be sold to the general public for the first time on an exchange, like the New York Stock Exchange. The effect of an IPO is to transform a privately owned company into a publicly owned one. Some advantages of an IPO are to gain capital to expand and/or to extract and monetize equity from an initial investment. For example, if an owner of a company holds a 100% stake he or she can have a relatively low amount of cash. By going public through an IPO, the owner could sell 49% of his or her stake while still holding control of the company. Though he or she will now have cash valued at the amount sold. Some disadvantages include significant costs, requirements to disclose financial documents, and loss of control of the company. A recent IPO was Facebook’s in May of 2012, which launched at a share price of $38.00.
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