Alternative Issue Methods

When a company decides to issue a new security, it can sell it as a public issue or a private issue. In the case of a public issue, the firm is required to register the issue with the SEC. However, if the issue is to be sold to fewer than 35 investors, the sale can be carried out privately. In this case, a registration statement is not required.3

For equity sales, there are two kinds of public issues: a general cash offer and a rights offer (or rights offering). With a cash offer, securities are offered to the general public. With a rights offer, securities are initially offered only to existing owners. Rights offers are fairly common in other countries, but they are relatively rare in the United States, particularly in recent years. We therefore focus primarily on cash offers in this chapter.

The first public equity issue that is made by a company is referred to as an initial public offering, IPO, or an unseasoned new issue. This issue occurs when a company decides to go public. Obviously, all initial public offerings are cash offers. If the firm's existing shareholders wanted to buy the shares, the firm wouldn't have to sell them publicly in the first place.

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