Initial public offering (IPO)

An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. 

                                                                                                                                    A privately held company has fewer shareholders and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too.
  The process for conducting an IPO generally involves a firm taking the following steps.

1. It registers with the Securities and Exchange Commission (SEC),
2. It seeks the help of one or more investment banks as “underwriters” to pursue a coterie of institutional investors and the general public to purchase the firm’s stock,
3. It presents the IPO fact file and prospects to the investor community,
4. It determines the number and price of shares to be offered in the IPO, and
5. It works out the aftermarket position, after observing the “quiet period.” 

Some important term are defined below-

• The process of underwriting involves raising money from investors by issuing new securities.
• Companies hire investment banks to underwrite an IPO.
• The road to an IPO consists mainly of putting together the formal documents for the Securities and Exchange Commission (SEC) and selling the issue to institutional clients.
• The only way for you to get shares in an IPO is to have a frequently traded account with one of the investment banks in the underwriting syndicate.
• An IPO company is difficult to analyze because there isn't a lot of historical info.
• Lock-up periods prevent insiders from selling their shares for a certain period of time. The end of the lockup period can put strong downward pressure on a stock.
• Flipping may get you blacklisted from future offerings.
• Road shows and red herrings are marketing events meant to get as much attention as possible. Don't get sucked in by the hype.
• A tracking stock is created when a company spins off one of its divisions into a separate entity through an IPO.