What Is an Issuer?

Two people discuss their business's financial status.
•••

Kiyoshi Hijiki / Getty Images

DEFINITION
An issuer is any legal entity that seeks to raise money by selling securities to fund new projects or investments, or to expand operations. The most common form of securities issuers sell are stocks and bonds, but securities can include derivatives, notes, debentures, mutual funds, or exchange-traded funds (ETFs), too.

An issuer is any legal entity that seeks to raise money by selling securities to fund new projects or investments, or to expand operations. The most common form of securities issuers sell are stocks and bonds, but securities can include derivatives, notes, debentures, mutual funds, or exchange-traded funds (ETFs), too.

Learn more about how issuers work, what they do, and why they’re an important thing for the average investor to understand.

Definition and Example of an Issuer

Issuers are any entity that seeks to raise money through the issuance of stock, bonds, or other securities. Generally, their goal in issuing securities is to raise the maximum amount of money possible from investors. Issuers are legally responsible for the obligations of the issue.

In the U.S., issuers that sell securities must do so in accordance with the Securities Act of 1933. Issuers must provide prospective investors with accurate information that will form the basis of the prospectus, as well as information that will not be included in the prospectus, but is accessible to the public. Section 7 of the Securities Act of 1933 gives the Securities and Exchange Commission (SEC) full authority to determine what information issuers must submit. Generally, requirements include:

  • Details about the issuer’s business
  • Past performance
  • Information about the issuer’s officers and managers
  • Audited financial statements
  • Information on executive compensation
  • Risks of the business
  • Tax and legal issues
  • Terms of the securities issued

The SEC reviews registration statements to ensure issuers are complying with all required disclosures. If SEC officials determine there are omissions or deficiencies, they can issue deficiency letters explaining what additional information is needed.

A non-issuer transaction (“private placement”) is one that does not directly or indirectly benefit the issuer. These transactions may be exempt from SEC registration requirements in part or in whole. Hedge funds are an example of entities that participate in private placements.

How an Issuer Works

In a traditional issuance of stock, company XYZ decides to sell common shares to the general public through a stock exchange such as the New York Stock Exchange or the Nasdaq. If it’s doing so for the first time, it’s known as an “initial public offering” (IPO). Company XYZ is the issuer, which means it must register with the SEC.

A company that is already public may raise additional capital by issuing new shares of stock to the public in a follow-on public offer (FPO). This can dilute the value of existing shares. A company that is already public may be able to pre-register an additional offering—what is known as a “shelf offering”—to expedite the issuing process.

Equity Securities vs. Debt Securities vs. Derivatives

Issuers can offer different types of financial assets in the U.S. market. There are equity securities—the most common of which are stocks—debt securities, and derivatives.

  • Equity: Equity securities, including stocks, allow issuers to acquire funds without incurring debt. Investors in equity securities gain partial ownership of the business and have claims on future earnings.
  • Debt: Debt securities, such as bonds, increase an issuer’s debt and contractually obligates the issuer to repay the debt—with interest—to bondholders.
  • Derivatives: Derivatives are a contract to purchase an underlying asset such as stock or commodity at a specified date and for a specified price. Options are examples of a derivative.

Credit Ratings for Issuers

Organizations such as Standard & Poor’s, Moody’s, and Fitch create credit ratings for bond issuers. These agencies research the bond issuer’s financial health, assessing the issuer’s creditworthiness—the ability to make interest payments and repay the loan in full upon maturity. The ratings are expressed primarily in letters but can include numbers. For example, AAA is a good rating, while Ba1 or below from Moody’s, or BB+ or below from Standard & Poor’s and Fitch are considered non-investment-grade bonds (also known as “high-yield” or “junk” bonds). These are considered riskier investments; buy with caution.

What It Means for Investors

Investors in both equity and debt securities essentially are lending money to an issuer with hopes of a return on that investment either when the equity is sold or the bond matures. It is important for investors to research an issuer thoroughly before investing to determine the issuer’s financial stability and growth prospects.

Key Takeaways

  • An issuer is any legal entity that seeks to raise money by selling securities to fund new projects or investments, or to expand operations.
  • Issuers may be corporations, financial institutions, investment trusts, or domestic or foreign governments.
  • In addition to stocks and bonds, issuers may be seeking investments in derivatives or debentures.
  • Issuers of bonds, including municipalities, are rated by agencies that assess the issuer’s financial health and ability to make interest payments and repay the loan upon maturity.

Article Sources

  1. Cornell Law School Legal Information Institute. "Securities Act of 1933." Accessed Feb. 4, 2022.

  2. U.S. Securities and Exchange Commission. "Investor Bulletin: Private Placements Under Regulation D." Accessed Feb. 4, 2022.

  3. Securities and Exchange Commission. "Investor Bulletin: Investing in an IPO," Page 1. Accessed Feb. 4, 2022.