Initial Public Offering (IPO)

The term IPO, or initial public offering, refers to the very first time a company sells their shares or stocks to the public.  This is usually a huge deal for both the company and for the investor, since it marks the first time this type of deal is open to bids and is sold to the general public.  The IPO process is fairly simple, and its main purpose is to raise capital for the company.  Usually several underwriters from different large investment banks are responsible for selling the initial stock.  Their job is to help gain interest and excitement about the newly public shares, and to sell them at a decent rate.  Usually the banks will gain a commission of about 8 percent (often less) on all sold shares.    The laws for IPO release are very strict all around the world, but the United States has the strictest rules of all the countries when it comes to making corporate stocks public.  These laws are put in place to protect both the new shareholders and the company alike.

The term IPO has been around for a long time, but it didn’t really make its mark in the marketplace until the early to middle 1990s when companies like Microsoft came around.  At that time, the word got out about Microsoft and spread so quickly, that the company almost had no choice but to go public.  The appeal of IPO sales made them one of the most popular companies to own stock in.  Of course, IPO’s have been in existence for a long time, and in 1929 they sold for a very high premium to rake in a large amount of asset value.  This happened again in 1989.  Investors like to take part in the IPO process because it allows them to get into companies at the ground level, and they can watch their stocks grow and increase in value.  This is also good for the company, since they become better known and more desirable in the marketplace.