Direct sale to a limited group of investors
A Private Offering represents an offer to sell securities directly to only a small group of large investors, or to a limited number of institutional investors (fewer than 100 investors).
KEY INSTITUTIONAL INVESTORS
Liquidity risk
Typically the investor has no secondary market on which to resell the purchased security. As a result, in a Private Offering it can be difficult to attract buyers.
BENEFITS
- Allows the issuer to choose the investors.
- Allows the issuer to avoid the entry of new shareholders into the current shareholder structure.
- Enables a return on investment over the long term.
Issuance to the public, accompanied by listing
A Public Offering is considered to be any issuance of securities of all classes (including debt securities) to the public. Under the Securities Law, an offering of securities is a Public Offering when it is offered through public information channels (media) to at least 100 investors. It can be an Initial Public Offering (IPO) or a Secondary Public Offering (SPO), of debt securities (bonds, commercial paper) and/or equity securities (shares).
CONDITIONS OF PUBLIC ISSUANCE
Over 100 investors
The offering must be sold to more than 100 investors.
Parallel listing on the Stock Exchange
The company must be listed in parallel on the Stock Exchange, so that small investors can turn their investment into liquid assets.
Advertising campaign
During the issuance of the initial public offering, an advertising campaign must be launched in the media.
Benefits
Benefits of a Public Offering
Raising Funds
To be used as investment to increase the volume of the Issuer's business activities. These are typically entities undergoing significant expansion and lacking sufficient capital to finance such growth.
Realization of Gains
To value the business at its market price and convert the actual value of the shareholders' holdings into liquid funds (cash out). These are typically successful companies in the maturity stage.
Prestige
Companies that do not require additional funding or liquidity, but view listing on the stock exchange as a matter of prestige and as positive publicity for their business.
Types of Public Offering
Initial Public Offering (IPO) and Secondary Public Offering (SPO)
Initial Public Offering (IPO)
An Initial Public Offering (IPO) is the first sale of a private company's Securities to the public and the listing of such Securities on a stock exchange, with the aim of raising capital as an efficient means of financing the company's activities. An IPO is also considered the first opening of a company's shareholding structure to the financial contribution and participation of the investing public as shareholders in the company. Stock exchange listing is an obligation for a company offering its shares to the public, as this process provides investors (the public) with the opportunity, should they wish to exit their investment after a certain period of time, to convert the shares purchased during the public offering into liquid funds by selling them.
Secondary Public Offering (SPO)
A Secondary Public Offering (SPO) is the second sale of Securities by a company that has previously issued Securities through a public offering. The purpose of a secondary public offering, which is also considered an additional issuance of Securities, is to raise capital to make investments in the company or to finance previously incurred debt. Securities issued through an SPO are also listed on the stock exchange in order to provide investors with liquidity.