5

Suppose a company issues its stocks.

Is it correct that there is no limit on the length of the time that the company can keep the money raised from IPO of its stocks, unlike for the debt of the company where there is a limit?

Thanks!

8

Is it correct that there is no limit on the length of the time that the company can keep the money raised from IPO of its stocks, unlike for the debt of the company where there is a limit?

Yes that is correct, there is no limit.

But a company can buy back its shares any time it wants. Anyone else can also buy shares on the market whenever they want.

4

Yes, that is correct. There is no limit.

An initial public offering of common stock by a company means that these shares remain outstanding for as long as the company wishes. The exceptions are through corporate actions, most commonly either

  • company buybacks of stock, or
  • a situation where a company is purchased by another company, and has its stock converted as part of the acquisition
2

You realize that most of the money raised through the IPO process doesn't go into the company's bank account? Those shares were shares that were held by the investors and original owners and it's those prior pre-IPO shareholders that got their money back along with a tidy profit.

The cash on its books was there before the IPO, and after. The IPO process was more about a change in stock owners ship than anything else.

Edit - as the SEC disclosure mentioned in comments below states, the Facebook IPO raised $6.7B for facebook's use, the rest of the transaction was from the investors selling their shares. Mark Zuckerberg still owns more than 55% of shares outstanding. The $6.7B is still about 10% of the company value. Nothing to ignore, but clearly, 'most' of the money from the IPO didn't go to the company.

  • Are you certain of this? I believe that it is often true, on a net basis. But if the company raises $10 billion through an IPO, that doesn't necessarily imply that ALL the insiders just cashed out, while public buyers of the now public stock bought up those shares in equivalent value. Or perhaps I misunderstand what your meaning here. Did you mean something else entirely, that I missed? (I'm no expert in IPO's!) – Ellie Kesselman Jun 28 '12 at 17:41
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    The FB IPO is an example. see finance.yahoo.com/q/ks?s=FB+Key+Statistics The market cap is $67B, and there's $4B in cash on the books. The $4B was there before the IPO and it's there now. No, the owners didn't all sell. But the shares sold were held by the owners prior to IPO. – JoeTaxpayer Jun 28 '12 at 17:55
  • Okay, thanks Joe. So how would you respond to the question directly? To do a thorough job would probably require showing some double entry accounting, just a few lines, that would demonstrate your point. I need to think about it a little more too ;o) – Ellie Kesselman Jun 28 '12 at 18:53
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    @JoeTaxpayer, in the FB IPO the company sold about 42% of the shares; existing shareholders sold the other ~58% (Source: SEC filing). So the company raised about $6.8 billion in cash for itself. (Yahoo numbers are not always the right ones to use.) – mgkrebbs Jun 28 '12 at 22:21
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    Good points. The Yahoo site is effective 3/31. Post IPO there will be more money, so the 6/30 update should be accurate. Whatever the exact numbers are, it's not all going to the company, and not all going to prior investors. I was trying to keep answer generic. – JoeTaxpayer Jun 28 '12 at 22:38

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