What Is An IPO?

Posted by Simon Moore on May 16

IPO stands for an Initial Public Offering. Lots of people can own companies, maybe it's a small company owned by its founder or a family business. However, at a certain point, some companies with big plans decide to "go public" and this can involve an IPO.

An IPO normally happens when a company has proven itself, maybe it's shown several years of good performance and is big enough that its shares can be bought and sold on a stock exchange.

IPOs can happen for a few reasons. First, off when a company sells itself to the public with an IPO it makes it very easy to buy and sell share in the company. If it didn't have an IPO then the shares may be much harder to buy and sell. That may matter if employees have shares and want to sell some of them. Or if some of the people who initially put money into the company want an easy way to sell.

It may also be important if the company needs money to grow. Up to a point you can get money for a business from friends, family perhaps maybe the bank and other investors with one-on-one meetings. However, if you want to have a really big business, then making your shares available to everyone can help. If you IPO you can raise a lot of money relatively quickly by selling shares.

Of course, an IPO can be expensive and time consuming, and once companies have shares they have to file more reports and follow more procedures, but for a lot of companies it can be a good way to grow even bigger, and give employees easy access to shares that they can buy and sell.


Written by Simon Moore

Simon is responsible for investing and related content at Moola. He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

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