What is Primary Distribution

Primary distribution is the original sale of a new security issue from the issuing company to investors/shareholders. Proceeds from a primary distribution are sent directly to the issuing company. This is also sometimes referred to as a "primary offering."

BREAKING DOWN Primary Distribution

In contrast to a primary distribution, a "secondary distribution" refers to a registered offering of a large block of an existing security by a holder of that security. The sale of a large block of existing stock by an officer of the issuing company is one example of a secondary distribution. Proceeds of a secondary distribution go to the seller, not the issuing company. A secondary distribution of stock does not add to the number of shares outstanding.

In some cases, a secondary offering must be registered with the Securities and Exchange Commission. If the seller of the shares is an affiliate with the company that has issued the shares and is in a position to influence company policy, a registration must be filed. This is known as a "registered secondary distribution."

A secondary distribution may also be referred to as a "secondary offering." But a secondary offering can also refer to a new issuance of securities by a company. This type of secondary offering adds to the number of shares outstanding, which typically results in a dilution of earnings. That is, with the new secondary issuance, existing shares now represent a smaller share of ownership in the company, and the earnings must now be spread among more shareholders, reducing the earnings per share.