A means of raising capital for a company through equity finance, as opposed to debt finance, is for a company to issue shares and seek a listing for its shares on the stock market/exchange. A company whose shares are listed on a stock exchange is called a listed/quoted company. In addition to providing additional funds, a company may undertake an initial public offering (IPO) (or listing or flotation) in order to broaden the company’s investor base, which may result in further possibilities to raise finance in the future (for example, by a rights issue), to allow existing shareholders to realise the value of all or some of their investment by including their shares in any sale to the public, to make the company’s shares more marketable, and to enhance the company’s reputation.
An IPO occurs by the company offering shares to the public for the first time, either new shares or a combination of new and existing shares to subscribers. The company (or issuer) must comply with detailed requirements laid down by governmental agencies and/or the stock exchange, including the preparation and publication of a prospectus. The company is generally advised by an investment bank, which may act as sponsor. The investment bank may also underwrite the issue, meaning that, for a fee, they will subscribe for and/or buy any shares being offered which are not taken up by the public, and then in turn lay off part of the risk to sub-underwriters. Sometimes, an IPO will be oversubscribed, which means that applications for shares exceed the number of shares on offer.
In order to raise capital, a company may want to target specific investors rather than the public at large. In this case, it may undertake a placing (US: private placement), which is an offer of shares to a specific group of individuals, usually financial institutions.