Public Offering

AuthorJeffrey Lehman, Shirelle Phelps

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An issue of SECURITIES offered for sale to the public.

A business can raise capital for its enterprise through the sale of securities, which include stocks, bonds, notes, debentures, or other documents that represent a share in the company or a debt owed by the company. When a company proceeds to issue the securities, it is called an offering.

There are two types of offering: private and public. A private offering is made to a limited number of persons who are so well-informed about the affairs of the company that the company does not need to file a registration statement with the state or federal government. In contrast, a public offering is made to the public at large and is governed by federal and state regulations.

Until the 1930s the public offering of securities was subject to minimal regulation. Investors had no reliable way of knowing whether the information they received about a public offering

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was correct and complete. Because of the lack of regulation, fraudulent public offerings were common, leading to the sale of worthless stock.

The Securities Act of 1933 (15 U.S.C.A. § 77a et seq.), enacted after the STOCK MARKET crash of 1929 and the resulting Great Depression, set in place rules and regulations for public offerings of securities in interstate commerce or through the mails. Before a public offering can be made, a company must file with the SECURITIES AND EXCHANGE COMMISSION a registration statement containing financial and other data, including the price at which shares will be offered to the public, commissions paid to those who underwrite the security, and any options to purchase that have been issued.

In addition to requiring the filing of a registration statement, the Securities Act of 1933 makes it unlawful to mail or transmit in interstate commerce any security for the purpose of sale or delivery unless it is preceded or accompanied by a prospectus (a written statement of information about the public offering) that fully discloses all material facts regarding the investment, including the financial status of the enterprise. Material facts are those that are necessary to enable a purchaser to weigh the advantages and disadvantages of the investment. The balance sheet contained in the prospectus must accurately reflect the financial status of the issuing...

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