An initial public offering is the SEC-registered sale that converts a private company’s stock into shares that trade on a public exchange. The formal process runs about four months from the first organizational meeting to the opening bell, though the financial and governance work behind it usually starts 12 to 18 months earlier. Federal law requires the company to register its shares with the Securities and Exchange Commission before any public sale, and the transaction pulls together investment bankers, securities lawyers, auditors, and SEC staff working on an overlapping schedule.
Who Runs an IPO
The issuing company is the center of the deal. Its executives supply the financial data, operational disclosures, and strategic narrative that investors will evaluate, and its board approves the decision to go public and the governance changes that come with it.
The underwriters are investment banks that manage the offering. A lead underwriter runs due diligence, structures the deal, markets the shares to institutional investors, and ultimately sets the price. Most large IPOs use a firm commitment structure: the underwriters buy the entire block of shares from the company and resell them to investors, absorbing anything they can’t place. A less common arrangement is best efforts, where the bank sells what it can and returns the unsold portion to the company. Firm commitment deals carry higher fees because the bank is taking the inventory risk.
Legal counsel for both sides drafts the registration statement, reviews contracts, and makes sure every disclosure meets federal and state securities requirements. That same work builds the due diligence defense that protects everyone involved if investors later claim the offering documents were misleading.
The SEC reviews the registration statement for completeness and accuracy of disclosure. It does not evaluate whether the offering is a good investment. Its job is making sure investors have enough information to decide for themselves.
How Long It Takes and What It Costs
From the organizational meeting where the company, its lawyers, and underwriters first sit down, plan on roughly 16 weeks to the first trade. That assumes cooperative markets and a smooth SEC review. The less visible work beforehand — auditing historical financials, upgrading internal controls, restructuring the board — can add another 12 to 18 months.
The biggest cost is the underwriting discount, the spread between what the underwriters pay the company for the shares and what they charge investors. On many IPOs that spread runs around 7% of gross proceeds, so a company raising $200 million pays roughly $14 million in underwriting fees. Beyond that, companies should budget for:
- Legal and regulatory counsel: $300,000 to over $1 million
- Accounting and audit fees: $500,000 to over $2 million
- SEC registration and stock exchange fees: $125,000 to over $500,000. The SEC’s registration fee rate for fiscal year 2026 is $138.10 per million dollars of securities registered1U.S. Securities and Exchange Commission. Fiscal Year 2026 Annual Adjustments to Registration Fee Rates
- Printing and filing costs: $50,000 to $250,000
- Directors’ and officers’ insurance: $250,000 to over $1 million
A mid-sized IPO can easily cost $2 million to $5 million before the underwriting spread. Those are one-time expenses. The ongoing costs of being a public company — annual audits, SEC filings, investor relations staff, and compliance infrastructure — add significant recurring overhead.
Preparing the Company Before Filing
Before anything is filed with the SEC, the company reworks its internal structure to meet public-company standards. The Sarbanes-Oxley Act requires an audit committee of entirely independent directors, meaning none of them can be employees or have a financial relationship with the company beyond board service. At least one member must qualify as a financial expert under SEC rules. Most issuers also establish compensation and nominating committees with independent members, because the major exchanges require them as a listing condition.
Historical financial statements must be audited by a firm registered with the Public Company Accounting Oversight Board.2Public Company Accounting Oversight Board. Auditing Standards Most issuers present three years of audited annual statements under U.S. Generally Accepted Accounting Principles. Smaller reporting companies and emerging growth companies can sometimes present two. Foreign filers may use International Financial Reporting Standards instead.
While the house is being put in order, the company selects underwriters through a competitive pitch sometimes called a bake-off, where banks present their distribution capabilities, research coverage, and valuation analysis. The winning bank signs an engagement letter that spells out the fee structure.
Due diligence runs in parallel. The underwriters and their lawyers work through every material contract, intellectual property claim, pending lawsuit, and financial projection. The goal is to verify that what the registration statement says lines up with reality. Anything missing gets fixed or disclosed before the filing goes public.
The Registration Statement and SEC Review
The core document is the registration statement, most commonly filed on SEC Form S-1. Any company can use it. The prospectus is the part investors actually read: the company’s business, management team, financial condition, risk factors, use of proceeds, and audited financial statements.3U.S. Securities and Exchange Commission. What is a Registration Statement? A second part contains exhibits like the underwriting agreement and legal opinions.
Once the S-1 is submitted, SEC staff attorneys and accountants review it for compliance with disclosure requirements. Initial review typically produces a comment letter within about 27 calendar days. The letter can contain anything from a few clarifications to dozens of pointed questions about accounting treatments, revenue recognition, or related-party transactions. The company and its lawyers answer each comment by filing amended S-1s until the staff is satisfied.
Companies can submit their initial draft confidentially for nonpublic review. The JOBS Act of 2012 originally reserved this for emerging growth companies, defined as those with annual gross revenues below $1.235 billion.4U.S. Securities and Exchange Commission. Emerging Growth Companies In 2017, the SEC extended the accommodation to all issuers regardless of size. The condition: the company must publicly file the registration statement and every prior confidential draft at least 15 days before the roadshow begins, or 15 days before the requested effective date if there is no roadshow.5U.S. Securities and Exchange Commission. Enhanced Accommodations for Issuers Submitting Draft Registration Statements
Confidential filing is a meaningful tactical advantage. It lets a company test the SEC’s reaction, work through comments, and even pull the IPO without any public footprint. Once the S-1 goes public, competitors and customers know the company is coming.
When comments are resolved and final terms are set, the SEC declares the registration statement effective. That is the formal authorization to sell the shares, usually granted the evening before trading begins.
What the Company Can and Can’t Say During the Process
Section 5 of the Securities Act of 1933 makes it illegal to offer or sell a security unless a registration statement has been filed.6Office of the Law Revision Counsel. 15 USC 77e – Prohibitions Relating to Interstate Commerce and the Mails In practice, the company, its executives, and the underwriters face strict limits on what they can say publicly throughout the IPO. Regulators call violations gun jumping.
Before filing, the company cannot make any communication that could be read as generating interest in the upcoming offering. Narrow exceptions apply: routine business communications it would have released anyway, and a brief factual announcement that an offering is planned. Emerging growth companies get additional flexibility to test the waters by speaking privately with large institutional and accredited investors to gauge interest before or after filing.6Office of the Law Revision Counsel. 15 USC 77e – Prohibitions Relating to Interstate Commerce and the Mails
After the S-1 is filed but before it becomes effective, the company can make oral offers and hand out a preliminary prospectus but cannot finalize any sales. That is the window when the roadshow takes place. The restrictions exist so investors base their decisions on the formal prospectus rather than promotional material.
Roadshow, Pricing, and Share Allocation
The roadshow is a one- to two-week sprint of presentations where the CEO, CFO, and lead underwriters pitch the investment case to institutional investors in major financial centers. These meetings are where real demand gets established. Management tells the growth story, answers hard questions, and tries to convince fund managers the stock is worth owning.
Investors receive a preliminary prospectus during the roadshow. It contains nearly everything from the final prospectus except the offering price, share count, and total proceeds, which are still being negotiated.
The underwriters run a parallel book-building process, collecting non-binding indications of interest from institutions at various price points. The book gives them a detailed picture of demand at different valuations.
Final pricing happens late the evening before the stock begins trading, after the SEC declares the registration statement effective. The lead underwriter and company executives pick a price per share based on the book. Underwriters often set the price below where they expect the stock to open the next morning. That built-in discount is deliberate: a stock that rises on day one generates positive headlines and rewards the institutions that bought before the company had any trading history. Historically, IPOs have averaged first-day returns of roughly 18 to 20% above the offering price, though individual results vary enormously.
Share allocation is the last step before the market opens. The underwriting syndicate distributes shares to investors who submitted indications of interest. The vast majority go to institutional clients like pension funds, mutual funds, and hedge funds.
The Greenshoe Option
Most IPO prospectuses include an over-allotment option, commonly called a greenshoe. It allows the underwriters to sell up to 15% more shares than the original offering size if demand is strong, and it can be exercised for up to 30 days after trading begins.
The greenshoe also stabilizes the price. Underwriters typically oversell the offering by 15% from the start. If the price holds or rises, they exercise the option and deliver the extra shares. If the price drops below the offering price, they buy shares in the open market to cover the oversold position, which supports the price.
Lock-Up Agreements
Company insiders, including founders, executives, and early investors, sign lock-up agreements that prevent them from selling shares for a set period after the IPO. The standard window is 90 to 180 days, though terms are negotiated and vary. Lock-ups are not required by the SEC; they are contractual commitments enforced by the underwriters.
The expiration date matters to every investor. When it arrives, a large block of previously restricted shares suddenly becomes eligible for sale, and the anticipation alone can push the stock price down in the days leading up to it.
Life as a Public Company
Going public is not the finish line. Once shares are trading, the company must file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form 8-K whenever something material happens, such as a CEO change, a major acquisition, or a restatement. These filings are publicly available on the SEC’s EDGAR system.
Regulation Fair Disclosure adds another layer. When a public company shares material nonpublic information with analysts or institutional investors, it must simultaneously make that information available to everyone, typically through a press release, a public conference call, or an 8-K filing. Selectively tipping off favored investors violates Reg FD and can trigger SEC enforcement.
Insiders, meaning directors, officers, and shareholders who own more than 10% of the company, must report their stock transactions to the SEC. Changes in ownership generally must be disclosed within two business days on Form 4.
Emerging growth companies get some relief. The JOBS Act allows EGCs to provide fewer years of audited financial statements, skip the auditor’s internal controls attestation required by Sarbanes-Oxley Section 404(b), and phase into certain disclosure requirements. These accommodations last up to five years after the IPO or until the company exceeds the $1.235 billion revenue threshold, whichever comes first.4U.S. Securities and Exchange Commission. Emerging Growth Companies
Buying IPO Shares as a Retail Investor
For most individual investors, the chance to buy begins only after the stock starts trading on the exchange. You place a market or limit order through your brokerage account the way you would with any other stock. The practical difference is that the opening market price is often significantly higher than the offering price, because institutional demand has already bid it up.
Getting shares at the actual offering price is extremely difficult for retail investors. Underwriters allocate most IPO shares to their largest institutional clients, the ones who generate ongoing commissions and participate in future deals. A handful of brokerage platforms offer small allocations to their most active or highest-balance retail clients, but it remains the exception. If your broker does provide IPO access, expect eligibility requirements tied to account size and trading history.
The gap between the offering price and the opening price is real money. On a stock priced at $25 that opens at $30, institutions who received the allocation captured a 20% gain before a retail investor could place a first order. That dynamic is baked into the system.
Direct Listings and SPACs
Not every company that wants to trade publicly takes the traditional IPO path. Two alternatives have gained traction.
In a direct listing, a private company lists its existing shares on an exchange without issuing new stock and without using underwriters. Existing shareholders, including employees and early investors, sell directly to the public once trading begins.7U.S. Securities and Exchange Commission. Types of Registered Offerings The company still files a registration statement with the SEC and goes through the review process, but it avoids the underwriting discount entirely. The tradeoff is no guaranteed investor base, no price stabilization, and no new capital raised unless the listing is structured to include a primary offering, which some exchanges now allow. Direct listings work best for well-known companies that already have strong investor interest.
A SPAC merger takes the opposite approach. A special purpose acquisition company raises money through its own IPO, then searches for a private company to merge with. The private company becomes public through the merger rather than its own registration process. SPAC mergers can close in as little as three to four months and give the target more certainty on valuation than a traditional IPO. The downsides include dilution from the SPAC sponsor’s equity stake, the possibility that SPAC shareholders redeem their shares before closing, and increased SEC scrutiny of SPAC disclosures in recent years.