What is an initial public offering (IPO)?

An initial public offering (IPO) refers to the process through which a private company offers its shares to the public for the first time by issuing new stock in the primary market. This event allows the company to raise capital from public investors to fund operations, expansion, or pay off debt. By selling new stock, the company can increase its equity base and gain access to a larger pool of capital than might be available through private funding.

In contrast to other processes such as selling existing shares in the secondary market, which involves transactions of previously issued stock between investors, an IPO specifically pertains to the issuance of new shares by the company itself. This distinction is crucial as it directly impacts the company’s share structure and its financial resources. The primary market is where these transactions occur directly between the issuing company and the investors who purchase the new shares, thus providing the company with new funding needed for growth.