Frankfurt Stock Exchange

Many people think that a listing on a stock exchange is synonymous with a public offering on a stock exchange. The fact is, the two are very different. 

When a company is listed on a stock exchange it means that, yes, the company is a ‘publicly traded entity’ but it does not mean that the company has been approved for a public offering. So, one might ask, what is the difference?

Being listed, otherwise known as being a ‘public company’, means that the company is available in electronic form so that the general public can easily and readily bid to buy or offer for sale ‘shares’ of the company through the public market. This means that the general public can buy the stock, and the existing shareholders of the company can sell their stock (as long as there is another seller or buyer, respectively), but the company itself, can not issue and sell shares in order to raise money, except in a ‘private offering’.  So, being listed on a stock exchange is great, but it does not mean the company can conduct (or has conducted) a public offering. In fact, before a Company is approved for a public offering, it can only conduct a private offering of its securities.

So what does it mean that a public company can only conduct a private offering? A private offering is a capital raise that is not registered with a regulatory body. The reason it does not have to be registered is that a private offering is exempt from registration, but only if certain stringent requirements are followed. This means that, even though a public company is in fact ‘publicly traded’, unless it have been approved for a public offering of it’s securities, it can only sell securities by following the very restrictive private placement registration exemption requirements. There are many types of private offering exemptions and the rules that must be followed in a private offering are quite complex. But in short, a private offering can only be a) sold to accredited (wealthy and sophisticated) investors and b) can not be sold through a general solicitation (no advertising of the offering or public dissemination whatsoever). This means that, legally, private placements memorandums cannot even be placed on the company’s website. In addition, the company officers must have a pre-existing relationship with those it solicits for investment in a private offering. Thus, as you can see, private offerings are extremely limited offerings. They can not be advertised or mentioned in any public media whatsoever; not even on the company’s website. Moreover, you can only solicit investment from accredited investors who are known to you previously. Thus, private offerings are basically offerings of securities to your friends and family, who must also be quite wealthy. In other words, private offerings are not very helpful for a public company.

So what makes a public offering special and how can you conduct one as a public company? First, a public offering can be advertised to the general public, sold to absolutely anyone in the general public, and done so without the strict requirements of a private offering. The catch is that in order for a public company to conduct a public offering, it must have an approved prospectus. With an approved prospectus, the company can basically go about raising money without restrictions. In many countries, this can only be accomplished with a sponsoring underwriter. On the Frankfurt Stock Exchange, however, a public offering can be conducted without an underwriter. This is a huge advantage to all small and midsize companies that otherwise could not attract an underwriter and thus cannot conduct a public offering.

Going public on the Frankfurt Stock Exchange, or any other exchange, should not be undertaken without the benefit of an approved prospectus and public offering.