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Initial public offering

An initial public stock offering ( IPO ) referred to simply as an "offering" or "flotation," is when a company (called the issuer ) issues [common stock] or [shares] to the public for the first time. They are often issued by smaller, younger companies seeking [capital] to expand, but can also be done by large [privately-owned companies] looking to become [publicly traded] .

In an IPO the issuer may obtain the assistance of an [underwriting] firm, which helps it determine what type of [security] to issue (common or [preferred] ), best offering price and time to bring it to market.

An IPO can be a risky [investment] . For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

Reasons for listing
When a company lists its shares on a [public exchange] , it will almost invariably look to issue additional new shares in order at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of a dissolution.

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