Companies often initially get listed on stock exchanges by means of Initial Public Offerings (IPOs) as a way to raise capital for their business. The process of a company becoming publicly listed gives private investors the opportunity to cash in on their hard work. It also gives the general public an opportunity to purchase the company’s stock and acquire a stake in the business. Investopedia explains:
"If a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets and earnings"
For more information on the concept of stocks, see our article on “What are Stocks?”
Prior to becoming publicly listed, a company typically has few shareholders such as its founders, angel investors and venture capitalists, for example. When a company believes it is mature enough to meet SEC regulations along with the benefits and responsibilities to public shareholders, it will begin announcing its plans to go public. This generally happens once the company passes the valuation mark of US$ 1 billion and achieves what some like to call “unicorn status”. Private companies at various valuations with strong fundamentals and proven profitability potential can also qualify for an IPO, however.
The IPO is a huge moment for a company and generally provides additional liquidity for the business to grow and expand. Moreover, the credibility and financial transparency that goes along with being publicly listed also tends to make it easier for companies to borrow money in order to further invest in their growth.
Besides potentially increasing companies’ access to capital, going public gives millions of people the opportunity to own a piece of the businesses and brands they believe in. Through broker-dealers like Passfolio, for instance, you can invest in over 3,800 publicly listed stocks, including names like Amazon, Google, Apple and Tesla.
Before investing, be sure to do your own due diligence. This task can be challenging because of the lack of readily available public information on a company that has just issued stock for the first time.There are risks including unproven management and established companies that may have substantial debt. As such, recently listed companies may not be appropriate for every investor.
With Passfolio Securities, you can start investing in US stock with as little as $1 - all with no commission fees¹². We make investing in US assets accessible and even accept local deposit methods such as TEDs.
¹ Please see our fractional shares disclosure.
²Securities less than $5 cost $0.02/share. Please see our disclosures on other charges.
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