IPO stands for initial public offering or the selling of a stock of one firm to the general public. A firm can obtain money by offering stockâ€”equity or debtâ€”to the public. The first time a firm offers its equity to the public, and then it is an IPO.
There are two categories for a company; either it is a public company or a private company.
A private company means that it has a few shareholders and as such the owners of the firm do not have to provide so much information to the public. Any person can form a corporation and have it incorporated as they only need to invest some money and file for the legal papers. There are big firms that are known around the world, but are privately held such as Hallmark cards, IKEA and dominoes pizza.
In most cases, it is difficult to obtain shares from a company that is privately held. Those who would like to become stockholders of a private firm can approach the owners, but the owners have no obligation to sell their stocks.
Public companies are the opposite of private companies since a part of their total stocks are owned by the public. Public companies are also known as publicly listed companies since they are listed and trade at a stocks exchange market. It is for this reason that making an IPO is also called as â€œgoing public.â€
There are thousands of shareholders for a publicly held firm. Public companies undergo regulation and monitoring of an authorized body. These companies are required to provide their financial sheets to the public on a quarterly business, and there must be a board of directors for each public company.
Going public is often done by privately held firms so that they can raise money.