Final answer:
IPOs are issuer transactions where a firm offers its stock to the public to repay early investors like venture capital firms and to raise capital for expansion. No fixed rate of return is promised when stock is sold, and the board of directors makes decisions in a company with many shareholders.
Step-by-step explanation:
All Initial Public Offerings (IPOs) are a type of issuer transaction where a firm sells its own stock to the public for the first time. The public includes a diverse group such as individuals, mutual funds, insurance companies, and pension funds. The primary purpose of an IPO is to provide funds to repay the early investors like angel investors and venture capital firms. These early investors, such as a venture capital firm with a substantial ownership, typically sell their part ownership of the firm to the public during the IPO. Moreover, an IPO also provides financial capital to the established company, allowing it to expand its operations substantially.
When a company sells stock, it does not promise a specific rate of return. Instead, shareholders' potential for financial return comes from any increase in the stock's price and dividends the company might declare. As for decision-making, in a company owned by a large number of shareholders, the board of directors, elected by the shareholders, typically makes strategic decisions.