An IPO, or initial public offering, is generally the first time a company sells shares to the public. In a U.S. registered IPO, the company files disclosure documents with the Securities and Exchange Commission (SEC), works with underwriters to market and price the shares, and typically seeks a stock-exchange listing. Afterward, it must meet ongoing public-company reporting requirements.
What is an IPO?
An initial public offering is a company’s first public sale of shares. The company is the issuer; the shares represent ownership interests that investors may buy. A registered IPO is one route to becoming a public company, but an IPO is not the only event that can trigger public-company obligations.
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This article describes the U.S. process. Filing rules, procedures, and exchange requirements differ in other jurisdictions.
How does a company go public through an IPO?
A traditional U.S. IPO involves preparation, SEC filings and review, investor marketing, pricing, share allocation, and usually an exchange listing. The company works with advisers and underwriters throughout the process.
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1. Prepare the registration statement and prospectus
The company and its advisers prepare a registration statement describing the business, the securities being offered, management, and financial statements. Form S-1 is commonly used for an IPO. The prospectus, which forms part of the filing, gives investors information about the company and the offering terms.
2. File with the SEC
A registered public offering requires a registration statement before securities are offered for sale. An issuer may initially submit draft registration materials confidentially under the SEC’s applicable process. Those materials must later be publicly filed within the required timetable.
3. Respond to SEC staff review
SEC staff review registration statements for compliance with disclosure requirements. The company may amend its filing to address staff comments. When the registration statement becomes effective, the company can proceed with the offering—but effectiveness is not SEC approval of the investment or a guarantee that all information is complete or accurate.
4. Market the offering and gauge investor demand
Underwriters are typically investment banks that manage and sell the shares. They gather indications of interest from prospective investors, often through investor marketing such as a roadshow. These indications help the company and underwriters assess demand and consider the offering’s terms.
5. Set the offer price and allocate shares
Underwriters recommend an offering price to the issuer, but the issuer ultimately sets the IPO price. The issuer and underwriters also determine the offering structure and how shares are allocated. An individual investor’s interest does not guarantee an allocation.
6. List the shares and begin trading
Companies usually apply to list their shares on an established exchange, such as the NYSE or Nasdaq. Exchange listing is a practical step separate from SEC registration. Once trading begins, the market price may differ from the IPO price.
7. Continue public-company reporting
After going public, the company has ongoing disclosure duties, including periodic financial reports such as Forms 10-Q and 10-K. Investors can find public-company filings through the SEC’s EDGAR database.
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How long does an IPO take?
There is no single overall IPO timeline established by the SEC guidance cited here; preparation and review time can vary by offering. One specific filing deadline applies to an IPO or an initial registration of a class of securities: the SEC’s Division of Corporation Finance says the registration statement, its initial nonpublic draft, and draft amendments must be publicly filed at least 15 days before the roadshow—or, if there is no roadshow, at least 15 days before the effective date. This is a minimum public-filing lead time for that situation, not a prediction of how long the whole IPO will take. See the SEC’s filing procedures.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What does SEC effectiveness mean—and not mean?
Effectiveness means the company may proceed under the registration statement; it is not an endorsement or investment recommendation. The SEC Office of Investor Education and Advocacy stated in its October 14, 2022 Investor Bulletin: “The SEC’s declaration of effectiveness does not represent an approval of the merits of the IPO or an indication that the information disclosed is complete or accurate.” Investors must assess the company and offering for themselves using available disclosures.
Can individual investors buy IPO shares?
Sometimes, but an IPO being offered to the public does not mean every investor can buy at the offering price. The issuer and underwriting syndicate control allocations; syndicate members do not necessarily receive equal allocations, and some firms may not offer IPO access to individual clients. A brokerage account alone does not ensure access or an allocation. The SEC explains these limitations in its IPO investor guidance.
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