An IPO can involve a sale of primary shares or secondary shares, but what's the difference? Let's have a look at company a. Company A is a private company with a number of existing shareholders. The company's looking to do an IPO of primary shares. This involves new shareholders becoming involved with company. A company a will issue brand new primary shares to those new shareholders, and the new shareholders will provide cash in return, company A may, then invest that cash and try and make a return from it.

So an IPO primary shares involves new shares issued to new shareholders and raises cash for company A.

However, company A could alternatively be looking at an IPO of secondary shares. Again, we've got new shareholders turning up, but those new shareholders are not going to buy shares from company A. Instead, existing shareholders are gonna sell their shares to the new shareholders, and that's called secondary shares. The new shareholders will then pay the existing shareholders with cash.

The transaction has not involved company a issuing any new shares. If that existing shareholder has now sold all of their shares, then that allows that existing shareholder to exit. So an IPO of secondary shares involves existing shares sold by existing shareholders. It allows existing shareholders to exit and it allows new shareholders to enter and it can allow other existing shareholders to increase their investments. Lastly, you can also follow up with block trades. A block trade is where a large number of shares are sold at a predetermined time between two groups of shareholders. This is often done away from the open market so that the share price isn't moved around too much.

It's important to say though, that an IPO can include both primary and secondary share sales at the same time. So maybe a company's gone through its growth phase, it's looking to raise new funds, it's does a primary share sale, but at the same time, some founding shareholders may decide, do you know what? I've been invested for a long time. Now it's time for me to get out. And so they sell their shares in a secondary share sale as well.