An initial public offering (IPO) is the process of offering shares of a private corporation to the public. The event is a landmark milestone for the involved parties and their respective companies, as it is an opportunity for growth and inflation of value for the publicly traded company. An IPO is the point at which a company is converted from a privately held organization to a public traded one, where it can then be subject to the scrutinization of the public markets, simultaneously introducing the business to a much wider array of potential shareholders, consumers and even partners.

Due to the long-term effects and highly involved process of going public, many companies prefer to stay privately held, only going public in cases of a need for financial resources. This can include the need for more capital, additional business partners or an expansion of the business to such a size that a public offering is the only viable option. For such companies, meeting the requirements for an IPO becomes a major task, with the help of investment banks who assist in marketing and surveying the demand, setting the IPO prices, the date and other guidelines.

The opening of a company’s stock to the general public helps to permit smaller investors to dip into the markets, while at the same time allowing larger investors to have access to what may otherwise be a privileged market. The process of an IPO is often seen as an exit strategy for the founders and first investors of the company, allowing them to be able to turn their private investment into a maximum profit in the long run.

The upside of an IPO, apart from the initial monetary gain and the access to capital, includes the potential for the company’s stock to potentially increase and for the company to be open for partnerships and superior agency, which includes competitive advantages in the public sector and industry. IPOs also signify a boost in public attention and more public brand recognition across markets.

The downside to IPOs is that the company will become subject to more detailed regulatory controls, as deemed by the Securities and Exchange Commission (SEC). The company must be in compliance with any local, international and federal laws relevant to a publicly traded company, and there is no guarantee that the share prices on the open-market will continue to increase. Companies which go public often have to pay increased salaries and higher dividends to shareholders, thus changing their long-term corporate strategies.

Regardless of cost, risks and rewards, an IPO is a major milestone for a company, emerging them out of the private sector and into the eyes of the public. Companies interested in going public must first understand the requirements, legal implications and risks related to going public before taking the plunge.