Wikipedia Sez
Initial public offering (IPO), also referred to simply as a ""public offering"" or ""flotation,"" is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. However, in order to make money, calculated risks need to be taken.

IPO Popularity In India

Why do companies list their shares public?

When a company lists its shares on a Public Exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of Stock Market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of a dissolution.

The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms.

In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list.

What are the advantage of a company going public/ ipo ?

No cost of capital: It does not need to pay interest on the capital raised from Public.
Huge amounts can be raised: It can raise huge amount of capital by going to public which may not be possible otherwise.
Brand Value: Company’s brand value will get increased because people come to know about the company very well.
Correct Valuation: Since the share price reflects the company’s financial healthiness it would become easy to arrive at a price in case of mergers and acquisitions.

What are the disadvantage of a company going public/ ipo?

Disclosure of information: Once a company becomes public it has to disclose so much information to public on regular intervals.
Decisions take time: Implementation of any key decision is subjected to the approval by the board of directors elected by share holders.
Cost of IPO: The cost of the process is very high, though it’s one time expenditure.

What is the process by which a company goes public /ipo?

The first step for any company to offer an IPO is to get several investment banks as underwriters. The purpose of underwriters is to assess the business, operational and financial background of the company in order to determine the value of the company’s shares to be sold to the public. Once it is agreed, the company will sign an agreement with the lead underwriter to sell shares on the market and the underwriters can proceed to sell these shares to any interested investors.

For large corporations dealing with billions of dollars of shares, several large investment banks may act as underwriters. These banks are paid commissions for shares that they sell. The underwriters will also help the company deal with the legal and financial regulations imposed by the country.
Most multinational companies that plan to hold an IPO will also need to comply with the rules and regulations of different countries therefore sometimes law firms may also be involved in some cases.Once the IPO is successfully launched, companies will need to submit their annual business earnings reports to the financial securities board since the company’s shares will be listed in the stock market.

Useful Links

http://www.moneycontrol.com/ipo/
http://en.wikipedia.org/wiki/Initial_public_offering

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