Securities offerings can only be made by means of a prospectus that details pertinent disclosures, company financial information, and relevant offering information. Once the prospectus has been i led with and declared effective by the Securities and Exchange Commission (SEC), underwriters may begin distributing the prospectuses to generate interest in the issue.
Securities for sale in the offering may include shares owned by company and selling shareholders. If an offering includes shares owned by selling shareholders, then the prospectus will detail the identity of the selling shareholders, the number of shares being sold by selling shareholders, and whether selling shareholders will be offering their shares pursuant to the securities offering or the underwriters’ overallotment.
The costs associated with the registration and sale of the securities may be paid for by the issuing company. However, the selling shareholders are responsible for any brokerage commissions. In addition, selling shareholders may be required to retain a broker-dealer who is registered in the state that the selling shareholder is trying to sell their shares in.
All net proceeds from the sale of the selling shareholders’ securities go directly to the selling shareholders. The issuing company does not receive any proceeds from the selling shareholders stake.