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What is an Equity Offering?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 November 2016
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An equity offering is a type of stock offering that is extended by a firm or by underwriters acting on behalf of that firm to investors. Typically, the offering has to do with a new issue of common shares that the company is launching, although some offerings of this type may also include shares of preferred stock. Depending on the circumstances, the equity offering may be extended to investors in general, or be extended only to a select group that includes current investors as well as a few others that the underwriters believe would be interested in purchasing the shares.

The actual equity offering can be structured in a number of different ways. One approach is to simply open the purchase of the newly issued shares of stock to the general public. Here, there are no advance opportunities for current investors to purchase shares ahead of any other investor. The sales take place on a purely first come first served basis. This approach is often a good way to broaden the scope of investors and prevent any one investor from moving closer to a controlling interest.

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A different approach is known as a controlled equity offering. In this scenario, there is no wholesale issue of a huge number of shares. Instead, the company will periodically issue relatively small numbers of shares to investors in general or possibly limit the opportunity to a select group of investors. The idea here is to only issue a small amount of shares when the company is in need of some additional capital. With a controlled offering, the number of shares is often in the thousands, rather than the millions that are typical for a general stock offering.

A private equity offering usually refers to situations in which targeted investors are invited to participate in the offering. Depending on how the offering is structured, this may include preferred as well as common shares of stock, and may place limits on the number of shares that any one investor may purchase. This private offering may be held prior to a public offering, which allows the company to offer any remaining shares to the general public, once the investors who participated in the private offering have made their purchases.

In all its forms, an equity offering provides an organized means of a company selling partial ownership to investors by means of allowing them to purchase shares of stock. Investors can often benefit from this type of activity, assuming that the acquired shares to appreciate in value over the years and that the issuing company remains financial stable with ongoing profits throughout those years. In order to secure the best possible investments, investors should scrutinize the history, current circumstances, and future prospects of the issuing company closely, determine if the projected returns justify the risk, and then make purchasing decisions based on that collected intelligence.

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