IPO is a method when a privately owned organization sells its stock shares to the open public for the first time. IPO is used as composition for Initial Public Offering. Almost all of the small organizations or start-up businesses in the need of investment chooses the IPO. IPO may also be done by the large private organization who is looking for external investment for additional growth and expansion. This technique requires the hiring of an expert, who decides everything in the IPO process with respect to the corporation. Expert's primary task is to determine the type of securities to be issue as well as the price for the security and the time to bring the process in the market by contemplating many economical aspects. When an organization specifics its investments on a public return, the funds compensated by investors for the recently released stocks and shares goes directly to the organization. An IPO, as a result, makes it possible for an organization to tap a large share of investors to offer itself with investment for future development, reimbursement of debt or funds. An organization supporting common stocks will certainly not be required to repay the investment to investors. The moment organization becomes listed on the stock market, it is able to gather extra common stocks and shares through another public offering referred to as secondary offering, thus again providing itself with investment for development without having any debt.
Biggest reason for almost any organization to go public rather than taking additional debts is to improve and expand the value base of the organization, IPO assists organizations to have access to much affordable funds from the public, contrary to debt in which organization is required to pay huge interest payment, IPO process help investors to understand the organization in a far better way via red herring prospectus, organization widens its reputation and community impression through IPO process, after going public company has to maintain few codes that helps to make organization to get clear for the investor by bringing in and maintaining better management and employees via fluid value involvement, finally the IPO method helps organizations to obtain other public dealt company as public companies has to revealed plenty of details unlike private company.
IPO requires plenty of legitimate requirement and organization needs to stick to few listed rule from the capital market board as an example organization has to file their reports quarterly, annually and must release every updates on the organization via press. This leads up to huge accounting and marketing cost which affects earnings of the organization. The information which company releases for the public are often beneficial for the opponents who are able to make the most of that information, not just competitors, information released publically may be very disadvantageous for the company when it comes to its suppliers and major customers.