We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Secondary Offering?

Gerelyn Terzo
Updated: May 17, 2024

After a company issues shares in the publicly traded markets, it might find that it needs to raise additional capital or money for some business reason. One way to accomplish this is to launch a secondary offering, in which more shares, or stocks, become available for investors, both retail and institutional, to buy and sell in the public markets. There are advantages and disadvantages to doing this.

A company that has already issued stock in a debut initial public offering (IPO) is eligible to sell additional shares in a secondary offering. The issuing corporation, typically the chief financial officer, will work together with an investment bank to determine the appropriate number of shares to sell and also the market price at which to sell each individual share of stock. Incidentally, this investment bank might receive certain privileges to purchase shares in a secondary offering at a discount price.

In the United States, the number of shares that can be sold in such a transaction are pre-determined based on a prospectus that a company files with the regulatory body in the region at the time of the IPO. These types of stock sales must be approved by a company's board of directors, however. Typically, a company will make an announcement detailing the components of the sale, such how many shares will be sold and for how long.

There could be a number of reasons driving a company's management team to issue shares in a secondary offering. For instance, a company might have an acquisition in its sights but not enough capital on hand to buy the business it wants to integrate into its own entity. One way to raise the necessary funds is to launch a secondary offering.

Perhaps a company wants to reduce its debt load and cannot generate enough revenues or sales to do this. A secondary offering can be an appropriate solution. Or, if a business such as a pharmaceutical operation needs additional capital to pursue clinical trials for new drug development, a capital-intensive or expensive process, then issuing securities in the financial markets can help.

A primary disadvantage for a secondary offering is tied to the existing shareholders. Investors who purchase stock become part owners in that company, and they own a share of the company depending on how much stock they purchase. That percentage ownership becomes diluted when there is a secondary offering, however, because the size of the overall pool from which shares become available increases. Shareholders often are granted rights, such as the ability to vote on major corporate events depending on the size of an investment, so these privileges similarly can become diluted when the number of overall securities increases.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Gerelyn Terzo
By Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in Mass Communication/Media Studies, she crafts compelling content for multiple publications, showcasing her deep understanding of various industries and her ability to effectively communicate complex topics to target audiences.
Discussion Comments
Gerelyn Terzo
Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.