Public Offering

What Is a Public Offering?

A public offering is the sale of equity shares or other financial instruments such as bonds to the public in order to raise capital. The capital raised may be intended to cover operational shortfalls, fund business expansion, or make strategic investments. The financial instruments offered to the public may include equity stakes, such as common or preferred shares, or other assets that can be traded like bonds.

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

Public Offering Explained

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 an offering price that the issue will be sold at.

The term public offering is equally applicable to a company's initial public offering, as well as subsequent offerings. Although public offerings of stock get more attention, the term covers debt securities and hybrid products like convertible bonds.

Initial Public Offerings and Secondary Offerings

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.