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.

RELATED TERMS
  1. Secondary Offering

    A secondary offering is sale of new or closely held shares of ...
  2. Primary Offering

    A primary offering is the first issuance of stock from a private ...
  3. Spot Secondary

    A market for the sale of a security that does not require SEC ...
  4. Bought Deal

    A bought deal is a securities offering in which an investment ...
  5. Public Company

    A public company issues securities through an initial public ...
  6. Initial Offering Date

    An initial offering date is the date on which a security is first ...
Related Articles
  1. Insurance

    Initial Public Offering (IPO) Explained

    An initial public offering (IPO) marks the start of a company's publicly traded life. Find out why companies undergo IPOs, and how the process works.
  2. Investing

    The Pros And Cons Of A Company Going Public

    Small companies looking for growth often use an initial public offering to raise capital. But going public brings both advantages and disadvantages.
  3. Investing

    Adjusting Price Charts To Secondary Offerings

    Secondary offerings may require rapid readjustment of trading strategies.
  4. 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?
  5. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  6. Investing

    AMC Prices Secondary at $31.50, Shares Fall

    AMC Entertainment priced at secondary offering at 31.50
  7. Managing Wealth

    Top 6 Performing IPOs of 2015 (ONCE, GBT)

    2015 has produced a mixed year for initial public offerings, with small biotechs overcrowding the winner’s list.
  8. Investing

    Reverse Mergers: The Pros and Cons of Reverse IPOs

    Reverse mergers can be excellent opportunities for companies and investors, but there are still risks. Find out the pros and cons of reverse IPOs.
RELATED FAQS
  1. What are the advantages and disadvantages for a company going public?

    Companies often use an initial public offering (IPO) as a way to generate capital. There are both advantages and disadvantages ... Read Answer >>
  2. What's the difference between primary and secondary capital markets?

    In the primary market, investors buy securities directly from the company issuing them, while in the secondary market, investors ... Read Answer >>
  3. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
  4. The share price and company's secondary offering

    When a company increases the number of shares issued through a secondary offering, it generally has a negative effect on ... Read Answer >>
  5. IPO versus private placement: What's the difference?

    Understand the differences between private placements and initial public offerings (IPO) that companies use to raise capital ... Read Answer >>
Trading Center