Investment Education: Primaries, Secondaries, Public, and Private Part 2

Jul 24, 2014 Investment Education: Primaries, Secondaries, Public, and Private Part 2

True of False questions regarding primary, secondary, public and private stock offerings. PART 2

1. True or False? In a primary stock offering, the money received from the sale of the stock goes to the founders of the company who decided to sell some or all of their stock.
   The answer is False. In a primary offering, the money from the sale of the stock goes to the company. Therefore, if company founders were selling their stock and receiving the money from the sale, it could not be a primary offering. It would necessarily be a secondary offering.

1. True or False? The initial public offering of a company’s stock can be a secondary.
   The answer is True. A private company not needing to raise new money selling stock might file a registration statement with the SEC to register shares of stock owned by company founders and early venture capital investors who wish to sell their stock. This would be an IPO because it is the first time any stock of the company is being registered and sold to the public. It is a secondary because the selling stockholders get the money from the sale of stock, not the company.

1. 3. True or False? A private offering of stock can be either a primary or a secondary.
   The answer is True. Example 1. A private company raising money in a round of financing through a private sale of new company stock to some venture capitalists would be doing a primary, private offering. The company gets the money, so it is a primary offering. Example 2: Even if the company is already public, if it wants to raise cash in a hurry without going through the registration process, it can do a private, unregistered offering. Again, because the company gets the money, it is a primary offering. Example 3: A private offering of stock can also be a secondary. A founder of a company who owns private, unregistered shares, decides he wants to sell some of his shares to build a house. The company is not currently filing a registration statement to enable the shares to become public, so the founder sells his block of stock to another founder, or some other person who is legally able to buy unregistered stock. This would be a private, secondary offering of stock.