What an IPO is

An IPO is the first time a private company sells shares to the public. Here is how the process works, who sets the price and what lock-ups are.

IPO stands for initial public offering. It is the first time a private company sells its shares to the public and lists them on a stock exchange. After the IPO, anyone with a brokerage account can buy and sell the shares.

Private vs public companies

A private company is owned by a small group, such as its founders, employees and investors. Its shares do not trade on an exchange.

A public company has shares that trade on an exchange, such as the New York Stock Exchange, the Nasdaq or the Toronto Stock Exchange. Public companies must publish financial reports on a regular schedule and follow securities rules.

An IPO is the step that turns a private company into a public one.

Why companies go public

Companies usually go public for a few reasons.

• To raise money. Selling new shares brings in cash the company can use to grow, pay down debt or fund research.
• To let early owners sell. Founders, employees and early investors can sell some of their shares on the open market.
• To raise its profile. Being listed can make a company better known to customers and future investors.

Going public also has costs. The company must pay advisers and lawyers, publish more information and answer to a wider group of shareholders.

How the process works

The steps are similar in the US and Canada, though the rules and regulators differ.

1. Hire underwriters. Underwriters are investment banks that manage the offering. They help set the price and find buyers.
2. File a prospectus. A prospectus is a detailed document that describes the business, its finances and its risks. In the US it is filed with the Securities and Exchange Commission. In Canada it is filed with provincial securities regulators.
3. Roadshow. Company leaders and the underwriters present the business to large investors, such as pension funds and mutual funds, to gauge demand.
4. Set the price. Based on demand, the company and underwriters agree on an IPO price, usually the night before trading starts.
5. Allocate shares. The new shares are sold at the IPO price, mostly to large investors and some brokerage clients.
6. Start trading. The shares begin trading on the exchange. From that moment, the price is set by buyers and sellers.

The IPO price vs the first trade

The IPO price is what the first buyers pay. The first trade on the exchange can be very different.

If demand is strong, the shares may open well above the IPO price. If demand is weak, they may open below it. News reports often describe how much a stock "popped" or fell on its first day.

Most individual investors do not get shares at the IPO price. They usually buy once trading begins, at whatever the market price is at that time.

Lock-up periods

Insiders, such as founders and early investors, are usually barred from selling their shares for a set time after the IPO. This is called a lock-up period. It is often several months long.

When the lock-up ends, a large number of shares may become available to sell. Some investors watch these dates because extra selling can affect the price.

Things to keep in mind

• Less history. A newly public company has a short track record as a public company. There may be fewer years of public financial data to study.
• Price swings. New listings can move sharply in their first weeks and months. You can read more in what volatility means.
• Read the prospectus. It lists the risks the company itself considers important.

Other ways to go public

An IPO is not the only route.

• Direct listing. The company lists its existing shares without selling new ones through underwriters. No new money is raised in the basic version.
• SPAC merger. A SPAC, or special purpose acquisition company, is a shell company that is already listed and exists to merge with a private business. The merger makes that business public.
• Reverse takeover. A private company merges into an existing public company. This route is common on the TSX Venture Exchange in Canada.

IPOs and the wider market

IPO activity tends to rise when stock prices are high and investors are eager. It tends to slow when markets are falling or uncertain. This is a general pattern, not a forecast tool.

The short version

• An IPO is the first sale of a company's shares to the public.
• Underwriters help set the price and sell the shares.
• The prospectus explains the business and its risks.
• The first trading price can differ a lot from the IPO price.
• Insiders are often locked up from selling for a period after the IPO.

This is general information, not investment advice.

Updated 9 October 2026