How Primary and Secondary Offerings Work

A primary offering refers to the initial sale of a company’s stock usually through an underwriter or an investment bank. The revenue from the primary offering goes to the company and is used to fuel growth and expansion. In exchange for the revenue, the company must give up part of its ownership to the investors.

A primary offering might be followed by a secondary offering, which is an additional stock issue to the market to raise more equity capital for the company. By issuing more shares, the company not only raises more money, but it dilutes the shares already outstanding. When additional shares are issued, the stock price will usually decrease to account for the greater number of shares outstanding for that company. A secondary offering also occurs when the company’s major shareholders decide to sell large pieces of the holdings. Owners typically choose to sell their shares gradually over time in order to not cause a sudden and dramatic decrease in the stock price.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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