Initial Public Offering (IPO)

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IPO or Initial Public Offering: An initial public offering (IPO) is the first sale of a corporation's common shares to investors on a public stock exchange.

• The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, being listed on a stock exchange imposes heavy regulatory compliance and reporting requirements.
• The term only refers to the first public issuance of a company's shares. If a company later sells newly issued shares again to the market, it is called a "Seasoned Equity Offering".
  • When a shareholder sells shares, it is called a "secondary offering" and the shareholder, not the company who originally issued the shares, retains the proceeds of the offering.
  • These terms are often confused. Remember that only a company which issues shares can make a "primary offering". Secondary offerings occur on the "secondary market", where shareholders (not the issuing company) buy and sell shares from and to each other.

NASDAQ: The majority of IPOs could be found on the Nasdaq stock exchange, which lists companies related to computer and information technology.

OTC and OTCBB: OTC stands for Over the Counter, referring to privately-traded stocks. The Over The Counter Bulletin Board Exchange (OTCBB) similarly lists companies related to computer and information technologies, with stock prices typically much lower and affordable than those of companies listed on one of the major stock exchanges.