Share Offering: Definition and Common Types

1.What is a share offering?

Share offering refers to when a joint-stock company issues new shares offered for sale to approach the financial market. The purpose of this activity is to increase the company’s charter capital, which enables it to invest in expansion and growth during operation or deal with financial debt.

Unlike “debt offering” which is represented by bonds or convertible notes from companies with a compromise to pay back with an amount of interest to investors, share offering involves the sale of common stock and gives investors a portion of ownership in the company.

Share offering is the process of raising charter capital through the sale of company shares to investors.

2.Common types of share offering

A business can sell company share in several ways through offering shares. Commons methods of this activity can be extended for only a limited number of investors or all investors in general on the market, depending on the company’s plan and how it wants to generate capital. Below are some common share offering methods that are legally approved, such as:

2.1.Offering shares to existing shareholders

Offering shares to existing shareholders is when a company issues new shares of stock and only sells these stocks to its shareholders according to their ownership proportion. This method will increase the company’s charter capital while retaining the number of its stakeholders.

When a company issues new shares, it is also required to have a legal registration by the competent authority. The procedures for offering shares to existing shareholders are prescribed in Clause 1 Article 123 of Law on Enterprises 2020, in which companies need to do the following steps to carry out a legal share offering:

(1) The first thing companies shall do is hold a General Meeting of Shareholders and decide to sell shares in the form of offering shares to existing shareholders.

(2) Within at least 15 days prior to the share registration deadline, the company needs to send a written notification to the shareholders informing them about the share offer, attached with a share registration form.

(3) The shareholders submit their registration forms to the company by the assigned deadline to claim their priority right to purchase the stocks.

(4) The company issues shares with certificates to the shareholders and registers the change of charter capital at the assigned institution within 10 days after completing the issuance.

Getting on track of these procedures properly is the only way companies can issue shares legally. Besides, it also makes sure that the information about the offering is transferred to all of the existing shareholders, ensuring their rights and avoiding unnecessary arguments when the data needs to be clarified or included.

2.2.Private placement of shares

Private placement of shares is no longer unfamiliar to businesses. Specifically, private placement of shares refers to the issuance whereby there is a limited number of investors who are invited to participate (often fewer than 100 investors). This approach offers the company more control over targeted shareholders who have already been chosen based on certain criteria and the quantity each investor can purchase.

Private placements of shares are only offered to a small group of investors who are chosen on certain metrics by the companies.

The procedures to carry out a private placement of shares are quite similar to when companies offer shares to their existing shareholders. The difference is that the issuing company needs to attach a list of chosen investors in the registration sent to authority. As specified in Article 41 of Decree No. 155/2020/ND-CP guiding the Law on Securities, a private offering happens as follows:

(1) An agreement on the criteria and form of share offering shall be issued during the General Meeting of Shareholders. After that, the company needs to apply for registration of a private placement of shares to the competent authority.

(2) The shareholders claim their priority right to purchase the stocks and the company issues share certificates to the investors.

(3) The company registers the change of charter capital at the assigned institution within 10 days after completing the issuance.

Usually, private placement is preferred over public stock offering because it has fewer legal requirements. Plus, Companies can target a small group of investors and decide who can participate in the offering based on specific criteria.

2.3.Public offering of shares

Another common form of selling stocks is the public offering of shares. Basically, public offering of shares is the process of selling newly issued shares to the public through a stock exchange. By offering shares to the public, companies can approach a large number of investors and obtain a significant amount of money to raise capital.

Public offering of shares is a mass method of selling stocks, so it requires a lot of regulations and legal procedures with competent authorities before the shares are allowed for sale. As specified in Article 48 of Decree No. 155/2020/ND-CP, offering stock to the public will be carried out in the following steps:

(1) The company shall register for a public offering with the competent authorities.

(2) Within the specified time after receiving the registration certificate, the issuing company must publish an announcement about the offering through mass media.

(3) The company issues new shares to the investors and makes a report about the issuance to the competent authority after completing the selling of the stocks.

It is always more complicated to offer stocks to the public. Therefore, companies need to follow the above procedures strictly to ensure that they comply with the law and avoid any potential legal risk in the attempt to gain money from the public.

Enterprises must comply with the law and regulations regarding the new issuance of their shares.

Conclusion

Share offering is no longer unfamiliar and has become popular nowadays due to its benefits in the growth of any business. However, the process of offering shares can be challenging for enterprises that are new to it, especially when a minor misstep can cause unwanted legal issues.

Join MMatch - the business trading platform of Inmergers to connect with potential businesses, investors and receive legal advice to maximize profit from your investment.