Home  /  Investing Hub  /  IPO  /  What is an IPO?

What is an IPO?

An IPO stands for Initial Public Offering. It represents the point at which a privately owned company joins the stock market and offers its shares to the general public.

Existing investors in the private business will often use an IPO as a way to exit their position in the company, partially or in full. They may have supported the company through its early days, providing finance to help grow from a young entity to a fully-fledged business employing lots of people. An IPO is a natural exit for so-called 'business angel' investors and their shares will be available for the public to buy.

The private business may also use the IPO to issue new shares to raise cash, such as to pay down debt, buy another company or build a new factory, for example. Again, these shares will be offered to the public.

Many staff get shares as part of their remuneration package, or options to buy shares in the future as an incentive to stay with the business. It is not uncommon for staff to therefore sell down some of their shares at the IPO, as they previously lacked a method by which to cash-in their 'investment'.

An IPO is an important point in a company's life. As you can see from the aforementioned examples, it is a point at which different people become part owners of the business. It may also represent a new stage in the company's career where it accelerates growth and wants to access capital markets to potentially expand into new geographical territories. Method by which to cash-in their 'investment'.

Being a listed company on a recognised stock market can also elevate a company's reputation with potential customers. Many large corporations like dealing with suppliers which trade on the stock market. Their financial accounts will be fully visible, thereby helping the corporations assess whether they are a decent partner with whom to do business.

Important information

Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested.

All investments carry an element of risk which may differ significantly. Investors must be aware that investing in new issues is not without risk and the value of your investments may fall significantly after the security is quoted on the open market. If you are unsure as to the suitability of any particular investment or product, you should seek professional financial advice.

Laws and tax rules may change in the future without notice. The information here is our understanding in May 2018. This information takes no account of your personal circumstances which may have an impact on tax treatment.

Related articles

Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.