The U.S. has the strictest legal regime in the world governing IPOs. Moreover, federal securities law applies not only to IPOs within the U.S., but to any IPO in the world that targets or is likely to target a large number of U.S. investors.

The IPO process is governed by the Securities Act of 1933 and the regulations of SEC; each stock exchange has separate rules that listing companies must follow. Smaller IPOs may also be significantly affected by state blue sky laws; these laws are usually pre-empted by federal law when the stock is to be listed on a major exchange or NASDAQ, but apply fully to certain medium-scale offerings on a local level.

Before the IPO begins in earnest, the issuer must draft a prospectus. The prospectus is a detailed overview of the company’s finances, history, operations, products, risk factors, industry environment, etc. The SEC actively polices the content of each IPO prospectus, and law firms are usually involved in the drafting process.

Under the Securities Act, until an IPO is registered with the SEC, no public offering of any kind may be made by the issuer or its underwriters. Any offering during this «quiet period» is called «gun jumping». After filing, the issuer and underwriters may advertise the IPO through a simple «tombstone» advertisement, listing the name of the company, the amount of stock being offered, the names of the underwriters, and other basic information. Private placement discussions and limited press releases are also permitted. Any written offers to sell stock must be accompanied by a copy of the prospectus as submitted to the SEC, which is usually stamped with a warning of its non-final status in red letters and therefore called a «red herring».

Once the SEC approves the prospectus, the price of the shares is finalized and the IPO enters a «free riding» period in which shares may be offered for sale in a number of ways, such as telephone calls, «road shows» and institutional visits.

The issuer is liable for any misstatement or omission in the prospectus; its directors and underwriters may also be liable if they fail to undertake a «reasonable investigation». Underwriters may defend against liability by completing a due diligence investigation of the issuer, usually involving outside lawyers and accountants.