Investment Education: Dilution from Primary and Secondary Share Offerings

Jul 24, 2014 Investment Education: Dilution from Primary and Secondary Share Offerings

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

1. True or False? If a public company has a private offering of unregistered stock, those shares will not be dilutive.
   The answer is False. If a company does a stock offering, it increases the number of shares outstanding and therefore is dilutive whether the offering is private or public.

1. True or false? If a company files a registration statement to register shares of stock that were issued privately two years ago, upon successful registration and sale of the newly registered shares, those share would be dilutive.
   The answer is False. When those shares were issued two years ago, they added to the number of shares outstanding and therefore diluted the existing shares at that time (2 years ago). Two years later, when these shares are registered and sold to the public, the number of shares outstanding does not change, so the registration and sale of the shares is not dilutive.

1. True or False? When a private company has a primary offering of stock, it cannot be dilutive.
   The answer is False. A primary offering means new shares are being issued by the company, so they would be dilutive whether the company is private or public. This is similar to question 1 above. In question 1, we did not use the word primary, but we said it was the company having the offering. When a company has an offering and the company gets the money from the sale of the offered stock, it is by definition a primary offering, and those new shares dilute the existing shares.