What is an Initial Public Offer or IPO?

IPO, Initial Public Offer, is the process through which a private business can become public by selling its stock to common people. It might be a new, young firm or an established company that decides to go public by listing on an exchange.

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Companies can use an IPO to raise equity funds by offering new shares to the general public, or existing shareholders can sell their shares to the public without generating any new funds. A firm that sells its stock to the public is not required to return the capital invested by the public.

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The business that sells its stock, known as an ‘issuer,’ does it with the assistance of investment banks. The company’s shares are traded on the open market after the initial public offering (IPO). Investors can resell the shares in the secondary market.

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According to SEBI, a public issue occurs when an issue/offer of shares or convertible securities is made to new investors in order for them to become part of the issuer’s shareholders’ family (the entity making the issue is referred to as the “Issuer”). The public issue is further subdivided into two types: initial public offering (IPO) and further public offering (FPO).

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The SEBI defines an IPO as “when an unlisted business issue either a fresh issuance of shares or convertible securities or offers its existing shares or convertible securities for sale, or both, for the first time to the public. This opens the way for the issuer’s shares or convertible securities to be listed and traded on stock exchanges while a further public offer (FPO) or follow-on offer occurs when an existing publicly-traded company issues new shares or convertible securities to the public or makes an offer for sale to the public.’