Final answer:
An IPO is a significant event in the life cycle of a company wherein it sells stock to the public to raise funds, repay early investors, and grow the business. Amazon is an illustrative example of a company that transitioned from a private firm to a public one via an IPO. Shareholders' returns are not guaranteed but are contingent on the company's success and market factors.
Step-by-step explanation:
An Initial Public Offering (IPO) marks the transition of a company from private to public. Responding to the student's question, we can use the example of Amazon.com, Inc., which started as a small online bookstore and later became a publicly-traded company with its IPO on May 15, 1997. Originally, Jeff Bezos founded the company in his garage in 1994, and after years of growth and expansion, it went public when it met the necessary conditions, demonstrating significant market potential and operational stability.
When a firm decides to conduct an IPO, it allows the company to raise capital by selling shares to the public. The event principally benefits the company by giving it the means to repay early-stage investors such as angel investors and venture capital firms, who may hold substantial ownership prior to the IPO. Over time, decision-making in a publicly-traded company often shifts to a board of directors elected by shareholders.
It's vital to note that companies do not promise a fixed rate of return when they sell stock. Instead, shareholders benefit from dividends, if issued, and potential appreciation of the stock's value, which depends on the company's performance and market conditions.