Many entrepreneurs hope one day they will build their company into a successful brand that can be publicly traded on a stock market. Essentially that is what an IPO, or Initial Public Offering, is. It is the process where a privately held company becomes a publicly traded company with the initial sale of its stock. Even after an IPO, publicly traded companies can revert back to being private entities if they so choose.
Essentially, an IPO is a tool that companies use to secure capital through investments for future use. In most instances, this investment is used to expand or improve their business, purchase assets, or provide a dividend to investors. Once a company has decided to have an Initial Public Offering, there are a number of steps involved. Let’s take a look at those steps:
- First, the company will choose an underwriter. An underwriter is usually a bank, or multiple banks, that help the company put together their prospectus. Underwriters are also in charge of getting the security out to the public. The prospectus is actually written twice, an initial prospectus and a final prospectus. The initial prospectus is often referred to as a red herring. The red herring usually lists secondary information about the company, but not important info like IPO stock share price and the number of shares available.
- Next, the final prospectus is filed with the Securities and Exchange Commissions, the company and underwriter set a date for the Initial Public Offering.
- Finally, the IPO occurs.
While there are many things that go on while preparing for the IPO, these are the basic steps. Preparing for an IPO takes a lot of work and is a very exciting time for a company. As an entrepreneur myself, I hope one day to take my brand to the next level and offer it as a publicly traded company. For more on investing, be sure to sign up for my FREE 5-day course for beginners #Slayinvest