Series 79 practice questioneasyFollow-On Offerings
What is the difference between a primary offering and a secondary offering?
- AIn a primary offering, the company issues new shares and receives the proceeds; in a secondary offering, existing shareholders sell their shares and receive the proceeds✓ Correct answer
- BA primary offering is the first offering a company makes; a secondary offering is any subsequent offering
- CA primary offering is on the primary market; a secondary offering is on the secondary market
- DA primary offering involves common stock; a secondary offering involves preferred stock
Explanation
Why A — In a primary offering, the company issues new shares and receives the proceeds; in a secondary offering, existing shareholders sell their shares and receive the proceeds
In a primary offering, the company itself issues and sells new shares, and the company receives the offering proceeds (less underwriting fees). In a secondary offering, existing shareholders (such as founders, venture capital funds, or private equity sponsors) sell their existing shares, and those selling shareholders receive the proceeds. Many follow-on offerings include both primary and secondary components, where the company issues some new shares while existing holders simultaneously sell some of their shares.
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