What is an Initial Public Offering ("IPO")?

An initial public offering (IPO) is the first sale of a corporation's common shares to investors on a public stock exchange. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, they also impose heavy regulatory compliance and reporting requirements. The term only refers to the first public issuance of a company's shares; any later public issuance of shares is referred to as a secondary market offering or a rights issue. A shareholder selling his existing shares (rather than shares newly issued to raise capital) on the Primary Market is an offer for sale, but if the company is being newly listed this is still considered to fall under the "IPO" umbrella.