DEFINITION of 'Flotation'

The process of changing a private company into a public company by issuing shares and soliciting the public to purchase them. Flotation allows companies to obtain financing from outside the company instead of using retained earnings to fund a new project or expansion. The term "flotation" is commonly used in the United Kingdom; the term "going public" is more widely used in the United States.


Flotation requires careful considerations regarding timing, company structure, the company's ability to withstand public scrutiny, increased regulatory compliance costs and the time involved in effecting the flotation and attracting investors. While flotation provides access to new sources of capital, flotation costs - the expenses associated with issuing new stock - must be accounted for when consider the switch from private to public company. Flotation costs mean it is more expensive to finance a project with new shareholder capital than with retained earnings.

  1. Private Equity

    Private Equity is equity capital that is not quoted on a public ...
  2. Impact Day

    The date on which a corporation makes a secondary offering of ...
  3. Direct Public Offering - DPO

    When a company raises capital by marketing its shares directly ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  5. Corporate Finance

    1) The financial activities related to running a corporation. ...
  6. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
Related Articles
  1. Investing Basics

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  2. Mutual Funds & ETFs

    Investing In IPO ETFs

    Learn the history, rules and risks of investing in IPO exchange-traded funds.
  3. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
  4. Personal Finance

    The Ups And Downs Of Initial Public Offerings

    Initial public offerings aren't the best option for every company. Consider these factors before "going public."
  5. Options & Futures

    Greenshoe Options: An IPO's Best Friend

    Find out how companies can save or boost their public offering price with these options.
  6. Economics

    What Happens in a Make-or-Buy Decision?

    A make-or-buy decision happens when a company must choose to either manufacture an item itself, or buy it premade from a supplier.
  7. Entrepreneurship

    Top 5 Most Successful Swedish Entrepreneurs

    Understand what makes Sweden a great place for entrepreneurship. Learn about five successful Swedish entrepreneurs who are making big impacts.
  8. Entrepreneurship

    Top 5 Most Successful Mexican Entrepreneurs

    Understand why so many socially conscious entrepreneurs have come out of Mexico. Learn about the top most successful Mexican entrepreneurs.
  9. Entrepreneurship

    Top 5 Most Successful Canadian Entrepreneurs

    Understand what makes an entrepreneur successful. Learn about five Canadian entrepreneurs who were able to achieve success in their respective times.
  10. Investing News

    Germany Tech Startups: Keep Them On Your Radar

    Many German companies, which are eager to catch up with the rest of the world by entering the digital age, are investing in tech startups.
  1. In an IPO, who is a greensheet distributed to and for what purpose?

    One of the most talked about documents that arises in the process of introducing a new issue is the greensheet. This is an ... Read Full Answer >>
  2. What does 'going public' mean?

    Going public refers to a private company's initial public offering (IPO), thus becoming a publicly traded and owned entity. ... Read Full Answer >>
  3. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  4. What is the formula for calculating weighted average cost of capital (WACC) in Excel?

    When analyzing different financing options, companies need to look at how much it will cost to fund operations. There are ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!