The first offering of a company's shares to the public known in the UK as a flotation. IPO was originally an American term but is increasingly being used across all world markets The shares offered may be existing ones held privately, or the company may issue new shares to offer to the public.

There can be lots of reasons why companies offer shares to the public:

• the directors want to raise new capital for the company

• the directors want to widen the shareholder base of the company
  

• the shareholders want to have a liquid market in which to trade their shares

• the directors want to be able to use 'paper' to make acquisitions

• the directors want the publicity that a public listing brings

Whatever the reason, it rankles that members of the public are so often denied the chance to 'get in on the ground floor' while institutions clean up. The internet may reverse the trend, however. There have already been several online flotations in the USA and Europe in which private investors get full participation rights. These are sometimes referred to as EPOs (Electronic Public Offerings).

One of the advantages of buying shares in IPOs is that they do not attract Stamp Duty (0.5% tax normally paid on share purchases) and since you can buy direct from the issuing company you can avoid broker's commission.

Source: www.Finance-Glossary.com