Legal Definitions - secondary offering

A secondary offering refers to the sale of existing securities by an investor to another investor. Unlike a primary offering, where a company sells new shares to raise capital, in a secondary offering, the company that originally issued the securities is not involved in the transaction and does not receive any of the proceeds from the sale.

Essentially, it's a transfer of ownership of already-issued shares or bonds from one owner to another. These transactions typically occur in the "secondary market," such as stock exchanges. While shares purchased in a public primary offering can generally be resold freely, shares acquired through private placements may have restrictions on their resale, often requiring compliance with specific securities regulations.

• Example 1: Individual Investor Selling Publicly Traded Stock

  Imagine Sarah owns 500 shares of "Tech Innovations Inc.," a company whose stock is publicly traded on the New York Stock Exchange. She originally bought these shares several years ago. Now, wanting to invest in a different sector, Sarah decides to sell her 500 shares through her brokerage account. Another investor, Michael, sees value in Tech Innovations Inc. and purchases Sarah's shares through his own broker.

  Explanation: This is a secondary offering because Sarah, an existing shareholder (not Tech Innovations Inc. itself), is selling shares she already owns to Michael, another investor. Tech Innovations Inc. does not issue new shares for this transaction, nor does it receive any money from Sarah's sale to Michael. The sale simply transfers ownership of existing shares between two private investors in the secondary market.

• Example 2: Venture Capital Firm Exiting an Investment Post-IPO

  "Growth Capital Partners," a venture capital firm, was an early investor in "BioHealth Solutions," a pharmaceutical startup. After BioHealth Solutions successfully completed its Initial Public Offering (IPO) and its shares began trading on NASDAQ, Growth Capital Partners decides to sell a large block of its shares to realize its investment gains. These shares are then bought by various institutional investors and mutual funds on the open market.

  Explanation: This scenario illustrates a secondary offering because Growth Capital Partners, an existing major shareholder, is selling previously issued shares of BioHealth Solutions. BioHealth Solutions, the company, is not selling new shares and does not receive any of the proceeds from Growth Capital Partners' sale. The funds go directly to Growth Capital Partners, representing a transfer of ownership of existing shares to new investors.

• Example 3: Employee Selling Vested Company Stock

  David works for "Global Logistics Corp.," a publicly traded company, and received company stock as part of his compensation package. After his shares vested, David decided to sell 300 of them to help fund a down payment on a new home. He executes this sale through his company's designated brokerage platform, and the shares are purchased by other investors on the stock exchange.

  Explanation: This is a secondary offering because David, an employee and existing shareholder, is selling shares he already owns. Global Logistics Corp. is not issuing new shares for this transaction, nor does it receive any money from David's sale. The transaction simply moves ownership of existing shares from David to new investors in the secondary market.