Posted in Finance, Accounting and Economics Terms, Total Reads: 265
Definition: Primary Offering
Primary offering is a method through which a private company raises funds from market by issuing new shares to the investors for the first time. This is also known as Initial Public Offering. However, companies can also do this through the issue of various debt and other financial instruments. This is done by the company mainly to expand its operations and also its reach to a larger base of consumers or clients for its various products. The shares once issued by a private company to through the initial offering are traded continuously on the exchange in the secondary market.
However, the company or the issuer of the stock gets money only during its initial public offering. When the shares are traded in the secondary market among various retail investors then, through their buying or selling of stocks, company does not get any funds. However, for any private company to get listed on any of the exchanges need to fulfill various kinds of regulatory requirement issued by Securities and Exchange Board of India (SEBI). One of the major guideline issued by SEBI is that the company should remain profitable for at least previous three years so that it can get listed on Sensex or nifty. This is done in order to ensure that only profitable companies are able to raise money from public.
Although if a company issues new shares to the public after the completion of its primary offering for trading in secondary markets afterwards it is termed as seasoned equity offering. In this case also the funds generated due to offering of new shares are taken directly by the company. After primary offering the investors who buy the shares of the company either through primary offering or at a later stage from secondary market become shareholders of the company. However, if a company wants to remove its shares from secondary market then it pays a premium price to its investors to get the shares back. This is known as buyback of shares.