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IPO Process: A Brief History on IPO Procedures.


The IPO process is different from country to country and changes from over time. The first company ever to raise capital by offering stocks to the public was the Dutch East India Company, which in 1602 offered stocks to raise capital for adventures throughout the New World, This can be considered they very first Initial Public Offering. Using the capital it raised, it was able to dominate the spice trade of the Maluku Islands, off Indonesia. Over the next two centuries it became one of the most powerful forces in the British political sphere. The first IPO in U.S. history was the Bank of North America, chartered in 1787.

Naturally, neither of these examples adhered to what we now think of as the modern IPO procedures. The IPO process as we know it today was first defined in 1933 as part of the Securities Act of that year. The Securities Act was developed as a reaction to the infamous stock market crash of 1929, written and advocated for during the Great Depression. Its original purpose was to strengthen the federal government's role in securities trading via the interstate commerce clause of the U.S. Constitution, allowing the government to ensure all securities sold across state lines were registered with the Securities and Exchange Commission.

Although there are exemptions that allow some companies to sell stock without pursuing full SEC registration, most companies seeking capital from the public investment pool must complete SEC registration. The IPO procedures as we know today are devised as a reaction to unscrupulous characters that used guile to persuade uninformed investors that valueless investments were, in fact, hot items. The IPO process is not the only thing that the Securities Act has bequeathed to current investors -- it also defines terms like "sophisticated investor" and "accredited investor" to indicate when an investor may take on an unregistered security at his or her own risk.

The main goal of the IPO process, and indeed of the Securities Act itself, was to encourage full disclosure before the widespread sale of any security could be allowed. To this very day, a company's prospectus represents its good faith attempt to comply with these requirements and earn the public trust.

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