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Guide

What is an IPO?

An IPO is when a company first sells its shares to the public. Here is how it works, why companies do it, and what beginners should be careful about.

3 min read · Updated 2026-10-13 · All guides

On this page
  1. The idea in one sentence
  2. Why do companies do it?
  3. A simple example
  4. How does it work, in simple steps?
  5. A filing is not the same as an IPO
  6. What should beginners be careful about?
  7. What to take from this

You may hear in the news that a company is “going public”. That is another way of saying it is doing an IPO.

The idea in one sentence

An IPO (initial public offering) is the first time a company sells its shares to the public on a stock exchange.

Before an IPO, a company is private: only a small group, such as the founders and early investors, owns it. After an IPO, anyone can buy and sell its shares on the exchange.

Why do companies do it?

  • To raise money. Selling shares brings in cash to grow the business.
  • To let early owners sell some of their shares.
  • For visibility. Being listed on an exchange makes a company better known.

A simple example

A company decides to sell 5,000,000 new shares at 20 each. If all of them are sold, it raises 5,000,000 × 20 = 100,000,000.

How does it work, in simple steps?

  1. The company hires banks to help organise the sale.
  2. It publishes detailed documents about its business, money and risks. These are meant to help buyers decide.
  3. A starting price for the shares is set.
  4. The shares are sold to investors, and then start trading on the exchange.

Rules and details differ from country to country.

A filing is not the same as an IPO

News sometimes says a company has “filed for an IPO”. That means it has submitted paperwork, not that the IPO will happen. Plans can be delayed or cancelled.

What should beginners be careful about?

  • Hype. IPOs often get a lot of attention, and attention is not a reason to buy.
  • Price swings. After shares start trading, the price can jump or drop quickly. Some rise on the first day and some fall. Nothing is guaranteed.
  • Limited history. A new public company has less of a track record for you to look at.
  • Missing out is a poor reason. Buying because you are afraid of missing out is how many people lose money.

What to take from this

  • An IPO is a company’s first sale of shares to the public.
  • It is a way for the company to raise money, not a promise of profit for buyers.
  • Read the company’s own documents and understand the risks before you ever consider buying.

If you want to see how mixing many investments can reduce risk, read What are ETFs and index funds?.