6.1.2. Types of Securities Offerings
Recall from Chapter One that when a company issues and sells new securities to the public, it is called a primary offering. The proceeds of a primary offering go to the issuer of the securities. When new securities are sold for the first time to the public, the offering takes place in what is called the primary market.
If the company has never issued common stock before, the first offering of shares is referred to as an initial public offering (IPO). Once the shares have been registered with the SEC and purchased in the public offering, the shares can be freely traded with other investors. The market for shares that are bought and sold by the public at large is called the secondary market. The proceeds of these sales do not go to the issuer, but instead go to the party who is selling the shares. When a large shareholder (like an institutional investor or a co-founder of the company) wants to sell a large number of shares on the secondary market, sometimes the investor conducts the sale similarly to a primary offering, for example by hiring an underwriter to manage it. This is called a secondary offering.
If a company decides to sell additional shares to the public after the initial public offering, it is called a follow-on offering. A follow-on may be offered by a variety of issuers and for a variety of reasons: a successful company that is funding new growth, a struggling company strapped for cash, or a major investor who wishes to liquidate some or all of her holdings.
In most public offerings, an issuer will register and issue