Initial Public Offering (IPO)

IPO (Initial public offering) is the first sale of stock by a company to the public.  An initial public offering is designed to generate capital for a business that decides to take the route of equity financing. Equity financing is when a company uses assets or ownership in the company to get the cash needed for continued growth. Selling stock through an initial public offering is basically selling partial ownership in the company.

One downside to this type of financing is that some control over the company is lost when shares are sold to the public. In order to complete a successful IPO, an underwriter must be used in the process. An underwriter is used to promote the stock to investors and eventually sell the securities to the public. Another term for an underwriter is an investment bank.

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