What is a primary offering (IPO)?

The primary offering, commonly referred to as an Initial Public Offering (IPO), is the process through which a private company offers its shares to the public for the first time. This is a significant event for a business as it transitions from a privately held entity to a publicly traded company. In this case, the company raises capital from investors by selling new shares, which can help fund operations, expand the business, or pay off existing debt.

This offering is crucial for the company as it helps establish a market price for its shares based on public demand and investor sentiment. Once the shares are made available to the public during the IPO process, they can be traded on the stock exchanges, allowing liquidity for the shareholders.

Understanding the distinction between initial offerings and sales of previously issued stocks or activities like stock buybacks is important as it helps clarify the various stages and mechanisms involved in equity financing and investing.