What is Initial Public Offering?

An IPO or, initial public offering, is the very first sale of stock issued by a company itself to the public. Prior to the issuance of an IPO the company is considered to be private, with a small number of stakeholders made up of early investors who started that company (such as the founders, promoters, angel investors, etc.) they are not required to disclose financial and accounting information in public.

The public, on the other hand, consists of everybody else – any individual or institutional investor/ private placement, offer for sale through issuing houses or stockbroker who was not involved in the initial days of the company and who is interested in buying shares of the company. Until a company’s stock is offered for sale to the public, the public is unable to invest in it. If you wish to invest in any private company you can potentially approach the owners of a private company about investing, but they can't be forced to sell you anything. Public companies, on the other hand, have sold at least a portion of their shares to the public to be traded on any stock exchange. This is why an IPO is also referred to as "GOING PUBLIC."

A private company has some benefits which they get loose once they go for the public. For example, as said its owners do not have to disclose much financial or accounting information about the company, don't have to share profits with shareholders. 

Public companies have many shareholders and are bind to stick to rules and regulations. They must form a group as the board of directors and they must report financial and accounting information every quarter. In INDIA, public companies report to the Securities and Exchange Board of India(SEBI). In other countries, public companies are overseen by governing bodies similar to the SEBI. In addition, public companies must stick to regulations and requirements set by the stock exchanges where their shares are listed. Being on a major stock exchange carries a great amount of prestige. 

Why Have an IPO?

Why go public, then? Going public raises a great amount of money for the company in order to grow and expand. Private companies have many options to raise capital – such as borrowing, finding additional private investors, or by being acquired by another company. But, the IPO option raises the largest sums of money for the company and its early investors without creating any burden on the company.

Being publicly traded also opens many financial doors: Because of the increased observation of analysts and investors, public companies can usually enjoy lower interest rates when they issue debt.

For investors, trading in open markets means liquidity. If you are a shareholder of a private company, it is very difficult to sell your shares, and even more difficult to value your shares, because investors prefer to invest more in public company. A public company trades on a stock market, with ready buyers and sellers and known price and transaction data. The stock market is therefore referred to as the secondary market since investors are buying and selling stock from other public investors and not from the company itself. Public markets and liquidity also makes it possible for a company to implement benefits like employee stock ownership plans (ESOPs), which help to attract top talent. Now let us know about some pros and cons of IPO:

Pros and Cons of an IPO

Pros:

1. A large number of investors to raise capital.
2.  The company gets capital at a lower cost.
3.  Increase the company’s prestige, and public image, which can help the company’s sales and profits.
4.  Public companies can attract and retain better management and skilled employees through liquid equity participation (e.g. ESOPs).
5.  Raises the largest amount of money for the company compared to other options available.

Cons:

• 1. The companies are required to disclose financial, accounting, tax, and other business information in public.
• 2. Significant legal, accounting, and marketing costs, many of which are ongoing increased time, effort and        attention required of management for reporting
• 3. The risk that required funding will not be raised if the market does not accept the IPO price, and sending the stock       price lower right after the offering
• 4. Loss of control and stronger control problems due to new shareholders, who obtain voting rights and can effectively control company decisions via the board of directors.
• 5. Increased risk of legal or regulatory issues, such as private securities class action lawsuits and           shareholder actions 

CAN A COMPANY OFFER IPO MORE THAN ONCE?

Yes, it can but this time it is not called IPO it is called as FPO(Follow-on Public Offer)