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Discussion Forum Unit 6

An IPO is when a privately owned company lists its shares on a public stock exchange, allowing it to raise capital from investors in exchange for shares. The IPO process requires hiring an underwriter investment bank to help set the initial share price and prepare required documents. Key steps include filing paperwork with the SEC, creating a prospectus disclosing company details, setting the issue price shares will be sold at, and determining the minimum share lot size investors can purchase. One purpose of an IPO is to allow early private investors to cash out their stakes as the company transitions to public ownership.

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27 views1 page

Discussion Forum Unit 6

An IPO is when a privately owned company lists its shares on a public stock exchange, allowing it to raise capital from investors in exchange for shares. The IPO process requires hiring an underwriter investment bank to help set the initial share price and prepare required documents. Key steps include filing paperwork with the SEC, creating a prospectus disclosing company details, setting the issue price shares will be sold at, and determining the minimum share lot size investors can purchase. One purpose of an IPO is to allow early private investors to cash out their stakes as the company transitions to public ownership.

Uploaded by

Renatus Malimbe
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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An IPO stands for Initial Public Offering.

It is a process where a privately owned company lists its


shares on a stock exchange, making them available for purchase by the general public. This allows the
company to raise capital by selling shares to investors. In return, investors become shareholders in
the company and have the potential to earn a return on their investment through dividends or by
selling their shares at a higher price in the future (Ashford, K. (n.d.)).

The IPO process in the USA is a challenging and time-consuming process that requires a private
company to prepare itself for an exponential increase in public scrutiny. The first critical event is when
a private company planning an IPO hires an underwriter, usually an investment bank, to consult on
the IPO and help it set an initial price for the offering. Underwriters help management prepare for an
IPO, creating key documents for investors and scheduling meetings with potential investors, called
roadshows. The underwriter puts together a syndicate of investment banking firms to ensure
widespread distribution of the new IPO shares. The next critical event is when the company and its
advisors set an initial price for the IPO, and the underwriter issues shares to investors, and the
company's stock begins trading on a public stock exchange, like the New York Stock Exchange (NYSE)
or the Nasdaq (Ashford, K. (n.d.)).

There are several points-in-time during the IPO process that are important to understand. The first is
the filing of paperwork and financial disclosures to meet the requirements of the Securities and
Exchange Commission (SEC), which oversees public companies. The second is the creation of a
preliminary prospectus, a document created by the IPO company that discloses information about its
business, strategy, historical financial statements, recent financial results, and management. The third
is the issue price, which is the price at which shares of common stock will be sold to investors before
an IPO company begins trading on public exchanges. The fourth is the lot size, which is the smallest
number of shares you can bid for in an IPO. If you want to bid for more shares, you must bid in
multiples of the lot size (Ashford, K. (n.d.)).

It's important to note that one of the purposes of an initial public offering is to let early investors in
the company cash out their investments. Think of an IPO as the end of one stage in a company's life-
cycle and the beginning of another. Many of the original investors want to sell their stakes in a new
venture or a start-up. Alternatively, investors in more established private companies that are going
public also may want the opportunity to sell some or all of their shares.

Reference
Ashford, K. (n.d.). What Is An IPO? Why Do Companies Go Public? – Forbes Advisor. Retrieved March
10, 2024, from https://www.forbes.com/advisor/investing/initial-public-offering-ipo/

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