What is an initial public offering (IPO)?

An initial public offering (IPO) refers to the process by which a private company sells its shares to the public for the first time. This event is a significant milestone for a company, as it transitions from being privately owned to publicly traded on a stock exchange. During an IPO, the company issues new shares to raise capital, which can be used for various purposes such as expanding operations, paying off debt, or funding research and development.

This process involves several steps, including selecting underwriters, preparing regulatory documents, conducting a roadshow to attract investors, and setting a price for the shares. Once the IPO is completed, the company's stock is available for trading on the open market, providing liquidity for existing shareholders and allowing new investors to purchase shares. The IPO is crucial in establishing the company's market capitalization and public identity.

In contrast, the other options represent different financial concepts: selling shares on the secondary market refers to transactions involving existing shares, a financial report on public companies entails disclosures of financial performance and condition, and buying back shares from investors is known as a share repurchase, which is fundamentally different from issuing new shares. Therefore, the definition of an IPO aligns precisely with the essence of option B.