In stock markets, what does an IPO allow a private company to do?

An initial public offering, or IPO, allows a private company to sell shares to the public. This is the standard process by which a company becomes publicly traded on a stock exchange.

Before an IPO, ownership is usually held by founders, employees, venture capital firms, private-equity investors, or other private shareholders. During the offering, the company may issue new shares and raise money for expansion, research, acquisitions, debt repayment, or general corporate purposes. Existing investors can also sell shares, although that money goes to those selling shareholders rather than to the company.

An IPO does not guarantee that a stock will rise. The shares receive a market price through the offering process, and later trading is determined by buyers and sellers. Public companies also face continuing disclosure, accounting, governance, and regulatory requirements. A related term, direct listing, allows existing shares to begin trading publicly without the same traditional underwriting structure.