Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Shelf Offering

What it is:

A shelf offering is an offering of new securities that are released to the public market incrementally over a period of time.

A company must first complete a shelf registration with the Securities and Exchange Commission (SEC) before it begins its shelf offering.

How it works (Example):

Under Rule 415, the SEC allows an issuer to register new securities, and then shelve the public offering for up to two years. This lets the company make a public offering any time it wants. During this time, any shares of unreleased stock are not treated as shares outstanding for purpose of valuing the company.

Because of the lead time involved in the registration process, a shelf offering allows a company to act quickly when the time is right to issue additional shares in the market, which can be a huge advantage. A company can use a shelf offering to its benefit by waiting for favorable market conditions to release shares.

Why it Matters:

A shelf offering provides a business with the maximum amount of control over the process of offering new shares. It allows the company to control the shares' price by allowing the issuer to manage the supply of its security in the market. It also allows the issuer to gauge and time the release of its stock, which is especially beneficial if the market is volatile. Lastly, a shelf offering allows a company to save on the cost of registration with the SEC by not having to re-register each time it wants to release new shares.