IPO stands for Initial Public Offering and means the new offer of shares from a company which was previously unlisted. This is done by offering those shares to the public, which were held by the promoters or the private investors prior to the IPO. In the case when other investors or Promoter held the shares the stake holding comes down to the extent their shares are offered to the public. In other cases new shares are issued to the public and the shares, which are with the promoters stay with them. In both cases the share of the promoters in the total capital comes down. For example say there are 100 shares in a company and 50 of these are offered to the public in an IPO then in such a case the promoter’s stake in the company comes down from 100% to 50%. In another case the company issues 50 additional shares to the public and the stake of the promoter comes down from 100% to 67%.
Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and that’s why investors keenly await IPOs and make money on most of them.
