Investment Education: Primaries, Secondaries, Public, and Private Part 1

Jul 24, 2014 Investment Education: Primaries, Secondaries, Public, and Private Part 1

True or False questions regarding primary, secondary, public, and private stock offerings. PART 1

Here are some true/false questions from our old exams. These different kinds of offerings were discussed in a prior post, and are covered in more depth in our book, “Why Stocks Go Up and Down”

1. True or False? An initial public offering is always a primary offering.
   The answer is False. An initial public offering can be a secondary offering. If a private company does not need to raise new money, but the existing shareholders want to sell some or all of their privately held stock, the company would have to file a registration statement with the Securities and Exchange Commission to register the shares the selling stockholders wish to sell. Because this would be the first public offering of the previously private company, it is an IPO. Because the share being sold are already outstanding, and thus being sold by existing shareholders, it is a secondary offering.

1. True or False? The second public offering of a company’s stock can be a primary offering.
   The answer is True. There is no limit to the number of primary offerings a company can have, as long as the shareholders have approved each sale. The second public offering, if there is one, can be a primary or a secondary, or a combination of both. The third public offering, if there is one, can be a primary or a secondary, or a combination of both Same thing for a fourth or fifth public offering, and so on.

1. True or False? A public company can have a private offering of unregistered stock.
   The answer is True. Just because a company is public, it does not mean all subsequent primary offerings have to be public. Remember, being a public company just means that there has been at least one S.E.C registered public offering of some of the company’s stock at some time in the past. Now, suppose that already-public company wants to raise money in a hurry to make an acquisition, and does not have time to go through the registration process necessary to do a public offering. In this case, it could do a private offering of stock. These privately offered new shares are not public, and not free to be traded among the public until they are subsequently registered, or become exempt from registration (exemptions are discussed in our book). Because these new shares are being sold by the company and the company gets the money from the sale, they are primary shares, even though these share are unregistered and therefore are not public.