The sale of shares or bonds by the issuing company to the general public for the first time, as distinct from a distribution by an existing shareholder, is a primary offering. Newly issued shares of a previously privately held company are sold in the primary market in its initial public offerings (IPOs).
Regardless of the nature of the primary offering, new shares are placed with shareholders, which increases the company’s total equity capital. New shares are those shares of a company that are issued for the first time.
A secondary offering is a public resale of a block of already publicly issued shares owned by one or more large shareholders, with all of the sale proceeds received by the selling shareholders. They are usually handled and underwritten by investment banks, which may buy the shares in a secondary distribution at an agreed fixed price and then resell them at a higher public offering price (POP), making money on the spread.
| Primary and Secondary Offerings in the US | |||
| Type of Share Offering | |||
| Primary | Secondary | ||
| Change in number of shares outstanding | By the number of shares | None | |
| Change in issuer’s owners’ equity | By the value of shares | None | |
| Recipient of sale proceeds | Issuer | Selling shareholder | |
| Registration with US SEC | Yes | Registered: yes; spot: no | |
A combined offering is a public offering in which part of the distribution comprises newly issued shares, with the issuer receiving the sale proceeds, and the rest consisting of previously issued shares, with the sales proceeds going to the issuer and the selling shareholders. Whereas an issuer is able to undertake primary and secondary distributions by either selling unissued shares or by selling shares held by the company in its treasury, existing shareholders can only make a secondary distribution.
In the US market, a registered secondary distribution is a secondary offering of shares by a shareholder – typically an affiliate – of a company, requiring that an effective registration statement be on file with the Securities and Exchange Commission (SEC) before the offering may be undertaken. A spot secondary distribution is a secondary offering that does not require SEC registration and may be made without delay (“on the spot”), typically to institutional investors and only when it is made by shareholders who are not affiliated with the issuing company.