This article is from the Investing Articles: Public Offerings: IPO and DPO series.
Initial Public Offering
The first time a company going public offers their stock on the open market, is called an IPO.
A temporary association of investment bankers, organized by the originating investment banker in a new issue of securities. Operating under an agreement among underwriters, it agrees to purchase securities from the issuing corporation at an agreed-upon price and to resell them at a public offering price, the difference representing the underwriting spread.
Underwriters are investment bankers who buy up all the shares for sale of a company going public and then sell them to the public at the best possible price. The lead underwriter is always listed first, while other underwriters with a lesser roles are listed below.
A "Qualified Investor" who has recieved a password enabling them to requests a prospectus and communicate directly with the underwriters, the company doing the their own offering, or a selling group member.
When a company decides to issue stock, which means they are selling part ownership in the company to the general public, itis called going public.
The announcement of an IPO must follow a specific format as designated by the SEC (Securities and Exchange Commission). This announcement occurs in various financial periodicals like the Wall Street Journal. The format that it is printed in, is referred to as a tombstone.
The prospectus contains detailed financial information about the potential company that is not available in the IPO announcement. It is a formal written offer to sell securities that sets forth the plan for a proposed buisness enterprise or the facts concerning an existing one that an investor needs to make an informed decision. A prospectus for a PUBLIC OFFERING must be filed with the Securities and Exchange Commission and given to prospective buyers of the offering. The prospectus contains financial information and a description of a company's buisness history, officers, operations, pending litigation (if any), and plans (including the use of the proceeds from the issue).