Initial Public Offering

An IPO is the first public sale of a company’s stock. The shares are sold on a securities exchange, and as a result, a private company becomes a public company. This dissertation will examine the reasons for using an IPO and some of the advantages and disadvantages of an IPO. It will also examine the procedure that is undertaken to execute the IPO. Lastly, Facebook’s recent IPO will be used to help delineate some of the concepts of an IPO. A company uses an IPO because once its stock is listed on the public stock exchange all the money from the sale of its stock in a primary offering goes directly to the company, as well as, to the company’s early private investors who opt to sell all or portions of their stockholdings as part of the IPO. In this way, the investors have the chance to monetize their investments. The ability to raise large amounts of capital from the marketplace is a major reason that companies go public. This capital can then go to future growth, repayment of debt, or working capital. An additional advantage of an IPO is the fact that a company selling common shares to the general public is not required to repay any capitol to its public investors. These public investors are at the mercy of the open market. Also, now that the company is public, it has an easier access to capital, it has greater exposure and prestige in the marketplace, and it is usually able to attract more talented employees, engineers, and managers. Furthermore, the influx of capital allows for increase acquisitions by the company. It should be noted that there are also disadvantages to an IPO. Completing the IPO usually results in significant legal, marketing, and accounting costs. Furthermore, the rules of the IPO require disclosure of financial and business information. The release of this information to the public can be useful to the company’s competitors. Finally, the company risks that the funding needed will not be raised and the public image of the

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