Shares are usually a company’s means of coming up with extra capital to finance various operations in the business. Additional capital can also be used to fund new investments. Companies issue shares to do all these and before the issuing, they need approval from their shareholders. There are various procedures related to issuing company shares, which includes, issuing a prospectus, which is followed by receiving applicator of shares, allotment of shares and finally a call on stocks.
Public companies use a prospectus, which is a document meant to invite the public to buy shares from them. Before the publication date of the prospectus, the company is required to present one copy to the Securities and Exchange Commission. The private companies and other public companies who are issuing shares privately are not expected to issue a prospectus. The information contained in a prospectus includes brief insight about the company that is issuing company shares, past performance, the names of directors, terms of issues and information about the project or investment for which the company is raising capital. Additional information that is included in the prospectus consists of the opening and closing dates of the share issue, allotment and on call dates, application fees, and the bank details for deposits and finally the minimum shares for the application. All this information enlightens the public and makes them aware of what they should do on the occasion that they become interested.
Application of shares
The application of shares is the next step. The interested investor prospects submit their application after receiving the invitation. The application is made on a prescribed form and in addition to this; they need to pay an application fee within the time before the closing date mentioned in the prospectus. An oversubscription can occur when the number of shares an investor applies for is higher than the number of shares issued. An under subscription happens when the application is less than expected. The application of shares is carried out in a specific bank, and a receipt is given to the investor. The issuing company only withdraws the application money after the completion of the allotment procedure. The fee should be at least 5% of the nominal share.
Allotment of Shares
The directors of the issuing company consult the stock market authorities before distribution of shares. They have to do this as part of the preparation process before selling shares to an applicant. They do it using an allotment letter. Allotment of shares involves allocating specific applicants the right to shares. Therefore, not all the applicants receive an allotment letter. Applicants who were not successful are given regret letters in addition to their application money. Sometimes all applicants are accepted, in which case the share allotment is said to be pro-rata. In this case, each applicant is given lesser shares compared to what they applied for.
Call on Shares
The remaining shares after application and allotment are done can be collected using calls. The number of calls depends on the number of installments. The last call is usually called the final call. The amount of the call cannot exceed the nominal value of the share. The period between payments of calls should be at least a month. It is mandatory that a 14-day notice is given that specifies the place and time.
Advantages of Issuing Shares
The first advantage and reason that public companies choose to issue shares are earning and raising money. The funds and capital raised are used to operate the normal running of the business and company while also promoting growth. The good thing about the capital found when shares are issued is that the company can choose to use it however, they please. It is entirely and rightfully theirs with no conditions attached.
The second advantage is that share issuance is flexible. The corporation decides the number of shares they want to issue, how to charge for each of the shares initially and the time of issuing company shares. They can also choose to issue more shares later. The company can offer stock of different kinds that provide different rights to buyers, for example the right to receive dividends or to vote about the management of the company and so on.
Flexibility also touches on the issue of issuing dividends. The company can also decide not to issue any dividends. They can also choose to change the timing and amount of payments of dividends.
Another advantage of issuing shares is that the company can repurchase shares they had already issued. This helps to increase the prices of the shares because fewer shares that meet existing demands. The higher the stock prices, the better a company feels about the growth of the operations in the company. Higher rates also benefit shareholders who usually sell their shares to earn a profit.
The selling of stock will most likely attract more investors for the company. It offers part ownership of the company’s operation and assures investors of security and a chance to recoup their investment. Issuing company shares allows a corporation to raise capital and attract investors at the same time.