IPO – An initial public offering is a complex transaction where shares in a company are issued as part of a transaction where the shares are going to be listed, or available for trading, on an exchange. For example, if XYZ Company is owned by Bart Smith and he wants his company to be available on an exchange, XYZ Company might issue 10,000 shares at $10 per share. As part of the transaction, a sponsoring investment bank (broker) will sell the shares on the company’s behalf. For this, they usually get a percentage of the proceeds and/or warrants allowing the broker to purchase shares in the company for a period of time at a specified price. When the transaction closes, the shares will be available for trading on the exchange at which point anyone with a brokerage account can purchase those shares.
Investopedia has a more extensive article on IPO’s. This is from a US perspective, but much applies to Canadian exchanges or exchanges in other countries. Click here for the Investopedia article.
