How Do IPOs Work? The IPO Process Step by Step

Under US law, a company may not offer or sell shares to the public unless the offer is registered with the SEC or an exemption applies. The usual route is a registration statement on Form S-1. The steps below are the US version. Other countries have their own regulators and forms.

1. 01
   PreparationThe company hires its banks and has its financial statements audited. It builds the controls and reporting a public company needs. An emerging growth company, one with revenue below $1.235B, may show two years of audited financials instead of three.
2. 02
   Confidential draftMany companies first submit a draft registration statement for private review by the SEC staff. That way, changes happen before anything is public.
3. 03
   SEC reviewThe staff checks the disclosure against the rules and sends comment letters. The company revises the prospectus, the document investors read before they buy. The staff does not judge whether the IPO is a good investment.
4. 04
   Public filingThe registration statement and the earlier drafts go on EDGAR, the SEC’s filing database, at least 15 days before the road show. A later amendment adds a price range and the number of shares.
5. 05
   Road show and order bookManagement and the underwriters pitch the shares to investors. The underwriters collect orders, how many shares each investor wants and at what price. These are not binding until pricing. The result is the order book, covered in book building.
6. 06
   Pricing and effectivenessThe SEC declares the registration statement effective. The company sets the offer price on the underwriters’ advice. The price may be left out of the effective filing and added in a final prospectus.
7. 07
   First tradeThe shares begin trading on the exchange. In the first days, the banks may buy shares to keep the price from falling far below the offer. They can use the greenshoe to sell and then cover extra shares. What happens that day is on the IPO day page.
8. 08
   Life as a public companyThe company now files quarterly reports on Form 10-Q and annual reports on Form 10-K. Existing holders wait out the lock-up. The IPO lock-up page has the details.

How Do IPOs Work in Short? The Short Answer

The company files, the SEC reviews, the banks collect orders, the company sets a price and the stock starts to trade. Everything else is detail around those five moves. Each move leaves a public trace, so you can follow an IPO on EDGAR and on the exchange.

What a Company May Say Before It Files

Before the filing, what a company says in public is limited, because a message that warms up the market can count as an offer. Since 2019, Rule 163B has let any company “test the waters.” It may talk to large professional investors, known as qualified institutional buyers and institutional accredited investors, before or after filing. Those talks gauge interest. They do not take orders.

The company

Files the registration, answers the SEC and ultimately determines the price. The SEC says so in its investor bulletin.

The underwriters

The investment banks that manage and sell the IPO. They advise on price, collect orders and decide who receives shares.

The SEC

Reviews the disclosure. The staff does not evaluate the merits of an IPO or decide whether an investment suits you.

The exchange

Admits the shares to trading. A company usually applies to list on an established exchange in connection with its IPO.

New investors

Mostly large institutions and wealthy clients of the banks get shares at the offer price. Most individuals buy once trading opens.

Existing holders

Employees, early investors and funds. They own shares already and usually agree to a lock-up.

A company lists for three reasons at once. Capital: new shares sold in the offering raise money for the business. Liquidity: founders, employees and early investors get a market where they can eventually sell. Currency: listed shares can pay for acquisitions and staff at a price everyone can see.

Listing has a cost. The banks keep a fee, and the offer price is often set below what the market will pay, which the SEC calls underpricing. Underpricing helps the banks sell every share. The company and its existing holders bear it. The numbers are on the IPO page. A company that wants to skip the banks can choose a direct listing, compared in direct listing vs IPO.

The company below is invented. Only the 15-day and 25-day gaps come from rules. The rest of the schedule varies from deal to deal.

The range gives the arithmetic. At $22, 20,000,000 shares raise $440M. At $25, they raise $500M. Pricing at $26 raises $520M, which is 4% above the $500M maximum. Rule 430A lets the volume and price move up to 20% of the maximum aggregate offering price without a new filing. So no amendment is needed.

Price falls after the first trade

The banks can support the price for a few days by buying shares. The SEC warns that once the support ends, the price may fall.

The IPO is delayed or pulled

A company can withdraw its registration. Before it is effective, the application is deemed granted on filing unless the SEC objects within 15 days. It must state that no shares were sold. Treat a date as firm only after the final prospectus.

You cannot sell for months

The lock-up is typically 180 days. Plan your cash needs around it.

More shares dilute you

The prospectus states how many shares are sold. The greenshoe can add up to 15% more on a firm-commitment deal.

An order does not become shares

Orders on the road show are not binding. The banks decide who gets shares, and most go to institutions and wealthy clients.

Common Mistakes

• Treating the listing as paydayFor an existing holder, it usually starts a lock-up. Cash comes after it ends, at that day’s price.
• Reading SEC effectiveness as approvalThe staff checks that the disclosure follows the rules. It does not judge the merits.
• Counting a confidential filing as a dateDraft filings get delayed and withdrawn. Until the public filing and a road show, there is no timetable.
• Assuming the offer price is open to youMost individuals buy after trading opens, at the market price.
• Forgetting the extra sharesThe greenshoe can add up to 15% to the share count after the listing.

Registration statement

The filing, usually Form S-1, that registers the offer with the SEC. Most of it is the prospectus.

Prospectus

The document that describes the company and the offer. Investors read it before they buy.

Underwriter

An investment bank that manages and sells the IPO.

Price range

The estimate of the offer price shown in the preliminary prospectus. Final pricing may land outside it.

Road show

Meetings in which management and the underwriters pitch the shares to investors before pricing.

Greenshoe

The underwriters’ option to buy up to 15% more shares from the company at the offer price.

Lock-up

A contract in which existing holders agree not to sell for a period after the IPO.

IPO

A private company’s first sale of shares to the public, registered with the SEC.

Figures were last checked on October 13, 2026. Rules are cited for the United States. Exchange listing standards and other countries add their own.