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← Series 79: Underwriting & New Financing
Series 79 practice questioneasyFollow-On Offerings

What is the difference between a primary offering and a secondary offering?

  1. APrimary: issuer sells new shares and gets proceeds; secondary: holders sell and get proceeds✓ Correct answer
  2. BA primary offering is the first offering a company makes; a secondary offering is any subsequent offering
  3. CA primary offering is on the primary market; a secondary offering is on the secondary market
  4. DA primary offering involves common stock; a secondary offering involves preferred stock
Explanation

Why A — Primary: issuer sells new shares and gets proceeds; secondary: holders sell and get 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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