What best describes the essential difference between a primary distribution and a secondary distribution?

The essential difference between a primary distribution and a secondary distribution lies in the nature of the shares being sold and who is selling them. A primary distribution involves the issuance of new shares by the company itself. This means that the proceeds from the sale go directly to the issuer, which can use the funds for various purposes such as expansion, paying down debt, or investing in new projects.

In contrast, a secondary distribution involves shares that are already outstanding and being sold by existing shareholders, rather than the company itself. The funds raised in this scenario go to the selling shareholders, not to the issuer. This distinction is crucial for investors as it reflects different scenarios in the capital markets, with primary distributions affecting the company's capital structure directly and secondary distributions reflecting the trading of previously issued securities.

Therefore, understanding that a primary distribution consists of the sale of newly issued shares by the issuer is key to grasping the primary function and implications of these two types of distributions.