Chapter 12. Raising Capital from the PublicIntroduction

Chapter 12. Raising Capital from the Public Introduction

INTRODUCTION

This chapter focuses on the considerations involved in IPOs and on the company's internal preparations for such an offering. Naturally, the chapter focuses on equity offerings, although other types of securities may also be offered to the public. An in-depth discussion of the actual process of the offering, from choosing the underwriters to the commencement of trade in the share, appears in the next chapter.

As an introduction, several basic terms should be defined:

IPO (Initial Public Offering) An issuance of stock by a private company which is raising capital by issuing securities to the public for the first time. In an IPO, it is usually only the company's shares, not the shareholders' shares, which are sold, and all of the proceeds are received by the company to ensure that the company has the capital it requires for its future growth.

Secondary Offering This is the sale of existing shares of a publicly held company by the company's shareholders. A secondary offering can be made together with an initial or a seasoned offering.

Seasoned Offering This is an issuance of shares to the public by a company whose shares are already listed for trade.

Private Placement This is an issuance to a limited number of investors (usually institutional investors) which is not a public offering. There are rules which determine when an offering is not deemed a public offering. A private placement of an unlisted company (which is reviewed in Part II) should be distinguished from a private placement of a traded company.