Editing Initial public offering (section)

{{short description|Type of securities offering in which a private company becomes a public company}}
{{redirect|IPO}}
{{Use dmy dates|date=March 2021}}

An '''initial public offering''' ('''IPO''') or '''stock launch''' is a [[public offering]] in which shares of a company are sold to [[institutional investor]]s<ref>Note: the price the company receives from the institutional investors is the IPO price</ref> and usually also to retail (individual) investors.<ref>{{Cite journal|last1=Hirst|first1=Scott|last2=Kastiel|first2=Kobi|date=1 May 2019|title=Corporate Governance by Index Exclusion|url=https://scholarship.law.bu.edu/faculty_scholarship/601|journal=Boston University Law Review|volume=99|issue=3|pages=1229}}</ref> An IPO is typically [[Underwriting|underwritten]] by one or more [[Investment banking|investment banks]], who also arrange for the shares to be listed on one or more [[stock exchange]]s. Through this process, colloquially known as ''floating'', or ''going public'', a privately held company is transformed into a [[public company]]. Initial public offerings can be used to raise new equity capital for companies, to [[monetize]] the investments of private shareholders such as company founders or [[private equity]] investors, and to enable easy trading of existing holdings or future capital raising by becoming publicly traded.

After the IPO, shares are traded freely in the open market at what is known as the free float. [[Stock exchange]]s stipulate a minimum free float both in absolute terms (the total value as determined by the share price multiplied by the number of shares sold to the public) and as a proportion of the total share capital (i.e., the number of shares sold to the public divided by the total shares outstanding). Although IPO offers many benefits, there are also significant costs involved, chiefly those associated with the process such as banking and legal fees, and the ongoing requirement to disclose important and sometimes sensitive information.

Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a [[prospectus (finance)|prospectus]]. Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide several services, including help with correctly assessing the value of shares (share price) and establishing a public market for shares (initial sale). Alternative methods such as the [[Dutch auction]] have also been explored and applied for several IPOs.