A public offering of shares is a process that allows a company to trade its shares on the stock exchange, thereby raising funds from individuals and companies wishing to become shareholders or receive financial returns due to its market appreciation.
Raising funds through a public offering of a company’s shares enables the financing of projects, investments, as well as acquisitions, among others. Additionally, by offering its shares, the company can enhance its visibility, liquidity and market value, attracting an increasing number of investors.
There are two main types of public offerings: primary public distribution and secondary public distribution.
A Primary public distribution occurs when a company issues new shares to the market, resulting in the inflow of funds into the issuing company itself.
In the case of secondary public distribution, the company’s shareholders, those holding shares issued by the company, sell them to other interested parties in the market, receiving the proceeds from the sale. In the sale of existing shares, the amount resulting from the operation go to the current owner of the sold shares, not to the company.
The process of a public offering of shares is bureaucratic and must be registered with the Federal Securities Commission (CVM), the regulatory body responsible for overseeing the securities market in Brazil.
Recently, CVM issued Resolution CVM 160, replacing CVM Instructions 400 and 476, becoming the general rule applicable to public offerings of primary or secondary distribution.
Article 3 of Resolution CVM 160 provides the definition of a public offering and mentions various examples of acts that, if performed, qualify the offering as public, even if it was not the initial intention of the company, making the transaction subject to registration with CVM. These acts include the use of advertising material directed at the general investing public, seeking undetermined investors, and conducting negotiations through stores, offices, establishments open to the public, websites, social networks, or applications.
Moreover, a company intending to conduct a public offering of shares must (i) become a corporation, pursuant to Brazilian legislation; (ii) have at least 3 years of financial statements audited by an auditor registered with CVM; (iii) have a board of directors, and (iv) appoint an Officer of Investor Relations elected through an shareholders’ meeting.
Engaging in a public offering without meeting the requirements set forth in Resolution CVM 160 may result in penalties imposed by CVM, which range from issuing warnings to imposing fines with fixed and substantial amounts. Additionally, there are several CVM precedents indicating the possibility of penalizing shareholders and/or officers for conducting a public offering without proper registration.
It is advisable to exercise caution when undertaking actions related to share offerings, in order to avoid examination by the regulatory authority and the potential imposition of sanctions.