Common Share vs. Unit Offerings
Both common share and unit offerings are different types of purchasing options for stocks and securities of a company. Common share offerings are the most known and frequently purchased stock options, whereas unit offerings are a more complex and grouped security purchasing option.
What are Common Share Offerings?
A common share offering is simply an initial share offering that is being sold in a stock or a fund that is publicly traded. When a company initially goes public on the stock market, they will offer shares of their company, called an initial public offering (IPO). These offerings are usually common share offerings, as they are offered at one price per share. Once you purchase a common share option, you will gain ownership in the company based on the number of shares purchased.
Common Share Offering Example
If Company A goes public on the stock market, they might offer each share for $20 apiece. If you’re interested in purchasing 100 shares of Company A for $20 each, then you would pay $2,000. Similarly, if you wanted to put $10,000 into Company A’s stock then you would own 500 shares of Company A.
Another way to think about it is when you would trade Halloween candy when you were a tot. Everyone knows that candy corn and mellowcreme pumpkins are the worst Halloween candies to get, and are typically given by old folks who decorate their homes with creepy plastic tombstones and discolored inflatable pumpkins. When you would open your trick-or-treat bag and dump out candy corn or creme pumpkins, chances are you wanted to trade them for something better. There’s always that one (weird) kid out there who enjoys stuffing their faces with wax, Yellow #5, and corn syrup. If that was the case, then perhaps you would get lucky enough to trade them for something better.
A common share offering is similar to this, for every one piece of candy you give away, you receive another piece. If you trade a package of candy corn for a box of DOTS Gumdrops, that’s essentially a common share offering—a one-to-one transaction.
What are Unit Offerings?
Unit offerings, also known as securities, are when securities are offered for both public and private companies. Unit offerings are sold in a group as a unit group offering when both public and private companies offer more than one security in a group. To understand what unit offerings are, they are simply a combination of securities and debt that a company has. However, a unit offering is not more than 15% of a common share offering price.
Unit Offering Example
There are various ways that unit offerings can be grouped. The most popular? A combination of common shares and warrant certificates. These offerings are grouped together and are sold and traded to investors as one package.
Two other ways that unit offerings can be grouped:
- A combination of a company’s stocks and securities
- A combination of a company’s debt and equity securities
Another example of a unit offering, and an example that you may commonly see, is a Unit Investment Trust (UIT). A Unit Investment Trust refers to a trust—similar to both open-ended and close-ended mutual funds—that includes a portfolio comprised of securities, stocks, and even bonds. Like a mutual fund, UIT’s are managed by professional portfolio managers and are sold to investors. Another word for a UIT investor is a unitholder. It is important to note, however, that unlike mutual funds, UIT’s have specified expiration dates.
The Difference Between Common Share & Unit Offerings
A common share offering is simply an offering that is sold in a publicly-traded stock or fund. When a company initially goes public on the stock market, the company will offer an IPO. These offerings are usually common share offerings, as they are offered at one price per share. In contrast, a unit offering is a grouping of offerings (think common shares plus warrant certificates). Whereas a common share offering is a single share offering, unit offerings are multiple securities that can also be offered as a trust (UIT).
What to Look For to Make Money
Making money with common share offerings and unit share offerings is pretty simple: the lower price per common share offering means you have the ability to purchase more shares. Snatching common share offerings at a low price point—and having faith that the company will grow/increase—means a high ROI. Likewise, making money from a unit offering is equally as easy: take a look at the entire unit offering’s portfolio and see what it looks like. What does the company’s debt look like? How about their stocks and securities? Assessing the entire portfolio will help solidify a slam dunk unit offering buy.
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