An IPO listing, short for “initial public offering” listing, is one of the first formal steps a company must take in order to sell shares of itself on the public market. Each country with a stock market has rules and regulations controlling who may sell stock. In most places, companies hoping to list themselves on the public exchange must begin by making an IPO listing with the appropriate government securities office. The listing details the proposed offer and provides all sorts of information about the company. Government securities regulators scrutinize IPO listings and must approve them before companies may begin making sales.
There are many reasons why a company might want to begin selling stocks. Raising money is usually one of the most common. Companies often offer IPOs as a means of rapidly raising capital.
Selling shares is almost always a trade-off, however. When shareholders buy stocks, they are buying an interest in the company. This means that they often have a say in how business is conducted and a vested interest in the company’s profitability. Depending on the corporate structure, major stakeholders may also have a seat on the board of directors. Companies that make themselves publicly traded have a heightened obligation to the public and to investors, which is one of the main reasons that governments seek to regulate securities and stock sales.
Businesses hoping to sell shares typically have to file an IPO listing with the relevant oversight authority. In the United States, the Securities and Exchange Commission receives IPO listings. The UK’s Financial Services Authority, Germany’s Federal Financial Supervisory Authority, and Japan’s Financial Services Agency do the same for their relevant markets.
Each agency requires slightly different things when it comes to an IPO listing, but in each case, the goal is assess whether the proposed listing is fiscally sound, fair to the public, and in compliance with prevailing law. It is not usually easy to prepare an IPO listing. Companies must determine not only how many shares they want to offer but also how they will manage the actual sales, how they intend to market and brand themselves, and how they will account for any investment money received. Most companies hire investment banks to serve as underwriters for stock sales. All of these decisions, as well as the details surrounding each, must be set out in the IPO listing.
Government regulators typically take quite a bit of time reading IPO listings. The purpose of IPO listings is to ensure that all public listings will be legitimate, and this determination can take anywhere from a few weeks to a few months to make. It is not uncommon for regulators to request additional information from companies before approving their IPO listings.
Following IPO listings come formal IPO filings. Once an IPO listing has been approved, the company may move forward by filing its initial public offering with a stock exchange. This filing acts to open trade, and buyers and investors are then able to purchase shares.