Key Takeaways
- An initial public offering (IPO) occurs when a privately owned company lists its shares on a public stock exchange.
- The IPO process, or "going public," is an intensive process with stringent requirements.
- Public listings give companies greater access to capital markets, but at a higher cost of compliance.
Full Text
An initial public offering (IPO) occurs when a privately owned company lists its shares on a stock exchange, making them available for trading by the public. Referred to as “going public,” the IPO process is a large undertaking for companies and requires significant filings and financial disclosures to meet SEC requirements.
In addition to their startup attorneys, companies will typically engage the services of capital markets attorneys and investment bankers to assist with the IPO process. Investment bankers will assist with marketing, gauging demand for, establishing the price for and the date for the issuance.
Going public provides huge publicity and a chance to raise significant capital. It also allows early investors in the company to gain liquidity in their investment. After companies go public, they may also obtain better terms when seeking debt financing given their increased transparency. Once a company goes public, however, increased regulatory requirements, financial analyst coverage, shareholder matters and other areas create large costs which companies will have to bear.
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