What is a Public Offering

A public offering is an organization’s sale of equity shares or other financial instruments to the public in order to raise funds for business expansion and further investment. Financial instruments may include equity stakes, such as common or preferred shares, or other assets that can be traded. Packages of tradable capital, such as derivatives, are also financial instruments.

The SEC must approve all registrations for public offerings of corporate securities in the United States. An investment underwriter usually manages and/or facilitates public offerings.

BREAKING DOWN Public Offering

Generally, any sale of securities to more than 35 people is deemed to be a public offering, and thus requires the filing of registration statements with the appropriate regulatory authorities. The issuing company and the investment bankers handling the transaction predetermine and establish the offering price. The term public offering is equally applicable to a company's initial public offering, as well as subsequent offerings.

Initial Public Offering and Secondary Offerings

An initial public offering (IPO) is the first time a private company issues corporate stock to the public. Younger companies seeking capital to expand often issue IPOs, along with large, established privately owned companies looking to become publicly traded. In an IPO, a very specific set of events occurs, which the selected IPO underwriters facilitate:

  • An external IPO team is formed, including the lead and additional underwriter(s), lawyers, certified public accountants (CPAs) and Securities and Exchange Commission (SEC) experts.
  • Information regarding the company is compiled, including its financial performance, details of its operations, management history, risks, and expected future trajectory. This becomes part of the company prospectus, which is circulated for review.
  • The financial statements are submitted for official audit.
  • The company files its prospectus with the SEC and sets a date for the offering.

A secondary offering is when a company that has already made an initial public offering (IPO) issues a new set of corporate shares to the public. Two types of secondary offerings exist: the first is a non-dilutive secondary offering, and the second is a dilutive secondary offering. In a non-dilutive secondary offering, a company commences a sale of securities in which one or more of their major stockholders sells all or a large portion of their holdings. The proceeds from this sale are paid to the selling stockholders. A dilutive secondary offering involves creating new shares and offering them for public sale.