It could be an existing old company that decides to go public and thereby get listed on a stock exchange.

Before an IPO, the company is a private company. It has a comparatively small number of shareholders who are the founders and other investors consisting of their families, friends, and venture capitalists or angel investors. The public could be anybody. It could be any individual or any institutional investor who was not involved in the formation of the company but interested in holding shares of the company. Only when a company’s stock is available for sale, the public will be able to invest in it.

Although an investor can approach the owners of a private company for investing, they are in no way obligated to sell their shares. In the case of public companies, they have sold a percentage of their stock to the public. These shares are available to be traded on a stock exchange.

Companies that raise capital through an IPO by the issue of new shares to existing shareholders or the public. They can also sell the shares held by them to the public without an infusion of any fresh capital. It is worthwhile to note that the company offering its shares to the public has no obligation to repay the invested capital to the investors.

The company offering its shares is known as an ‘issuer’, and they do this with the help of investment banks. These shares are listed on the stock exchange after an IPO and traded in an open market. They are available for sale in the secondary market.

When a company becomes public, the company can raise a considerable amount of funds for its growth and expansion. Private companies can raise capital by borrowing, finding new private investors, or by being taken over by another company. However, an IPO can raise a large amount of money for the company and its initial investors.

When a company decides to sell its stock to the public, it makes An Initial Public Offer. If they can convince investors to buy stock in the company, they can raise a sizable amount of money.

An IPO is also a strategy for the promoters and early investors of the company to exit. This way, they can enjoy the profit made by taking a risk to start a new venture. The shares sold to the public in an IPO could be those owned by these founders and investors.

Even after an IPO, the company and of some of the promoters, co-founders, and early investors would still retain a considerable portion of the total stock. Although there are new shareholders in the company, they continue to have a great deal of influence in the management of the company.