 Hello, and welcome to the session. This is Professor Farhad. In this session, we would look at selling securities to the public, alternative issue methods. In the prior session, we look at the steps in selling securities to the public. Now we're gonna look at the alternative issue method in this session. This topic is covered in introduction to finance, the CPA, BEC section testing. LinkedIn, if you haven't connected with me on LinkedIn, please do so. YouTube is where you would need to subscribe. I have 1,500 plus accounting, auditing, finance and tax lectures. Here's our list of courses that I cover. If you like my lectures, please like them, share them, put them in the playlist that the world know about them. On my website, farhadlectures.com, I do provide additional resources such as the PowerPoint slides, multiple choice questions, notes, exercises, 2000 plus CPA questions if you're studying for your CPA. Studypal.co is an artificial intelligence study buddy platform that matches you with a candidate that's studying for the CPA, CFA or any other exam. They are in 85 countries and 2,800 cities. So the first thing we need to differentiate when we're selling stocks, whether we are selling stocks or bonds when we're raising money, whether it's a public or a private issue. Well, when a company decide to issue a new security, it can sell it either as public, it means to everyone or private issue. Private issue means to particular people, particular investors. In the case of a public issue, the firm must register with the SEC as we saw in the prior recording. However, if the issue is to be sold to less than 35 investors, the sale can be carried out privately. So because it's a small amount of people, the assumption for the SEC is those people, they know what they're doing. In this case, a registration statement is not required. Simply put, if you are one of those 35, it means you are financially capable of making a decision without the government intervention. Now for selling equity, which is stocks, for equity stocks there are two type of public issues when we sell stocks. A cash, a general cash offer, well, which are, which when the securities are sold to the public, to the general public, or we have a right offer. What is the right offering? Securities are initially offered only to existing owners. Right offers exist when the company already exists. Right offers means the company before they sell it to the public, they have to ask their own shareholders if they're interested in buying stocks. Now, right offers are fairly common in other countries, but they are relatively rare in the US, okay? So just FYI, you know what they are, okay? IPO, what is an IPO? IPO is initial public offering. This is the first public equity that's made by the company when they sell to the public. And sometimes it's called unseasoned new issue because we're gonna be looking later at seasoned new issue. So IPO or unseasoned new issue, they mean the same thing. The issue occur when a company decide to go public. Public means they're gonna sell their stocks to everyone. For example, take an example as Facebook or Google for a long period of time. Those companies were private. Facebook was owned by Zuckerberg, Mark Zuckerberg. Then at some point he needed some money. So he gets some money privately from investors. Then at some point they needed more money. So the private investors wasn't good enough. So they went public, okay? So obviously all companies when they go public for the first time it's called initial public offering, okay? Obviously all initial public offering are cash offers because they don't have existing shareholders yet or public shareholders yet, okay? So if the existing shareholders wanted to buy the shares, they wouldn't have to sell them publicly in the first place. So think about it. If you want to buy the shares, if you are an existing shareholders, why would you go for initial public offering? Because during the initial public offering you are selling your stocks to the public. So if you want them, don't sell them, okay? Now when we sell stocks that are more than one waste, we're gonna look at the different methods. The different methods are public, which is traditional negotiated method. We have a privileged subscription, non-traditional and private. So we're gonna look at each one of them separately. Just its terms you need to be familiar with for an introduction to finance course. Under the public, under the public, we have what's called firm cash commitment. The company negotiate an agreement with an investment banker to underwrite and distribute the new shares. A specified number of shares are bought by underwriter and sold at a higher price. So this is basically the most traditional way of selling stocks is basically you would use an underwriter or an investment banker and we'll talk about underwriter much more in the next session actually. That's the whole session about underwriters and this is the most traditional way. Okay, you will see that how. Best offer, best effort cash offer, the company has investment banker sells as many as new shares as possible and agreed upon price. There is no guarantee concerning how much cash will be raised. So here the investment banker is they will sell as many as possible but they cannot guarantee how much cash they would raise. It's a best effort, they're taking their best effort and the Dutch auction cash offer, the company has investment back investment banker auction shares to determine the highest offering price obtainable by a given number of shares to be sold. So what they do, they have an auction and the investment banker will determine what's based on the auction, how much is the highest selling price they can get for the security. So they can sell it different ways but this is the traditional negotiated cash offer. Okay, we have firm commitment, we have best effort and we have Dutch auction. Privilege subscription, this is different, this is direct right offers, the company offer the new stocks directly to existing shareholders. This is assuming the company already exists and we offer them the stocks initially. Right by stand by offer, like the direct offer, this contain a privilege subscription arrangement with existing shareholder, the net proceeds are guaranteed by the underwriter. So the net proceeds, if they were not sold, they are guaranteed by the underwriter. That's the difference. Non-traditional, this is not, this is a little bit non-traditional, not used as much, but used recently. Self cash offer, qualifying company can authorize, can authorize all shares they expect to sell over a two year period and sell them when needed. So simply put, you put them, you get the authorization, you put them on the shelf and once you need them, you will sell them. Competitive firm cash offer, the company can elect to award the underwriting contract through a public auction instead of negotiation. So here what they're doing is they said, okay, we wanna sell the stocks, I want you the underwriter to bid on it and the best will get the contract. Private, those are direct placement, is securities are sold directly to purchaser, who at least until recently, generally could not resell securities for at least two years. Here you sell them to them, but they have to hold them for two years. Again, once you have a private offer, usually the government is outside the picture and generally speaking, the people should be financially capable and knowledgeable and knowledgeable. A seasoned equity offer, remember we talked about unseasoned equity offer or seasoned equity offer, SEO is a new issue for a company that have previously issued shares. So this company already exists and now they're issuing new stocks, but the company already exists. Here, a seasoned equity offering on common stock can be made using either a cash offer or the rights offer because why the right offers is available because the company already exists. So if the existing shareholder wants to buy, sure they can. Now in the next session, again, we would look at underwriters. And once again, I do cover many courses, not just finance and mostly accounting for that matter because it's for accounting lectures. But if you have any questions about this topic, please email me, visit my website for additional resources. If you're studying for your CPA exam or your exam, study hard, it's worth it. Stay motivated and good luck.