Final answer:
An Initial Public Offering (IPO) is where a firm sells its stock to the public for the first time to raise capital and repay early investors. Overpriced IPO shares may lead to market corrections post-IPO. In a company with many shareholders, the management team makes daily decisions while shareholders vote on significant matters.
Step-by-step explanation:
Understanding the Initial Public Offering (IPO) Process
An Initial Public Offering (IPO) is the process through which a private company goes public by selling its stocks to the general public for the first time.
This transition allows the company to raise capital from public investors.
The IPO serves crucial purposes, such as providing funds to repay the company’s early-stage investors, including angel investors and venture capital firms, and to generate financial capital for expansion.
When a venture capital firm owns a significant part of a company, it can recoup its investment by selling its shares during the IPO.
Examples of overpriced IPO shares can often be seen in market trends, where the hype surrounding a company leads to an inflated public offering price.
However, these companies may see sharp declines in share value post-IPO if the initial prices were not supported by strong fundamentals.
As for the decisions in a company owned by a large number of shareholders, it is the management team, typically led by the CEO and other executives, that makes the day-to-day decisions,
While the shareholders have voting rights on major decisions through board elections and other mechanisms outlined in the company’s charter and bylaws.