Public Offering . . .

refers to a sale of company securities that is registered with the federal Securities and Exchange Commission (SEC) and state blue sky commissions. It is an offering and subsequent sale of company securities that does not rely on an exemption from the 33 Act’s registration requirements. Shares issued in a public offering are freely tradable (unless they are otherwise restricted because the holder is an insider).

Public offerings generate needed cash but are expensive and time-consuming to conduct. They also subject the company to ongoing reporting and disclosure requirements with the SEC. At the same time, however, they create a market of freely tradable company securities that the company can use to raise capital in the future and that management or employee shareholders can use to convert their holdings into cash. Having publicly traded stock makes company shares in employee incentive plans more attractive because the shares are easier to convert into cash.

An active market for company shares makes it easier for a company to expand its activities through the acquisition of other businesses. Because they are readily convertible into cash, registered company shares can often be used instead of cash to acquire a company. With the proper deal structure, registered company shares can also be used to ease the immediate tax burden of a seller caused by his company’s sale and make the acquisition easier to close. See: Going Public, IPOs (Initial Public Offerings).