What is a Bought Deal? A Comprehensive Legal Overview

Q: How does a bought deal differ from a traditional public offering?

In a bought deal, the underwriter purchases all shares before marketing them to investors, while in a traditional offering, shares are marketed first.

Q: Can smaller companies use bought deals?

Yes, smaller companies can also utilize bought deals to raise capital.

Definition & Meaning

A bought deal is a type of financing arrangement where an underwriter agrees to purchase all shares of a new stock issue directly from the issuer. This transaction occurs before a preliminary prospectus is filed, allowing the underwriter to resell the shares to investors. The primary benefit of a bought deal is that it eliminates financing risk for investors, as the underwriter assumes the responsibility of selling the shares.

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Legal Use & context

Bought deals are commonly used in the context of securities law and capital markets. They are relevant in transactions involving public offerings and private placements. Legal professionals may encounter bought deals when advising clients on financing options, structuring share issuances, or navigating regulatory compliance. Users can manage some aspects of these transactions using legal templates available through US Legal Forms.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A technology company plans to raise capital through a bought deal. An investment bank agrees to purchase the entire offering of shares at a discounted price, allowing the company to secure funds quickly while the bank takes on the risk of reselling the shares to investors.

Example 2: A real estate firm issues a bought deal to fund a new development project. The underwriter buys the shares upfront, ensuring the firm has immediate access to capital while managing the sale process to investors. (hypothetical example)

Comparison with related terms

Term	Definition	Key Differences
Bought Deal	An underwriter buys all shares of a new issue before the prospectus is filed.	Assumes all risk until shares are sold.
Fully Marketed Deal	Shares are marketed to investors before the underwriter commits to purchase.	Less risk for the underwriter; depends on investor interest.

Common misunderstandings

What to do if this term applies to you

If you are considering a bought deal for your company, consult with a financial advisor or legal professional to understand the implications and structure of the deal. You can also explore US Legal Forms for templates that can assist with the necessary documentation and agreements.

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Quick facts

Typical fees: Varies by underwriter and deal size.
Jurisdiction: Governed by federal and state securities laws.
Possible penalties: Fines for non-compliance with securities regulations.

Key takeaways

Frequently asked questions

What is the main benefit of a bought deal?

The main benefit is that it eliminates financing risk for investors, as the underwriter buys all shares upfront.