Issuing shares of a company is the process by which it transfers part of its property in exchange for the capital of investors. This is one way to raise money for business development and financing new projects.
Also, it helps the company to expand its client base and gain access to new markets. So, the issue of shares can be useful for investors, who can receive income in the form of dividends or capital benefits from the sale of shares.
Types of shares that companies can issue
The company can issue different types of shares, each of which has unique features. One such type is regular shares, which give companies the right to vote at the general meeting of shareholders and dividends (in case of company profit). Another type of shares is preferred shares, which are higher level dividends, as well as priority rights in the liquidation of the company.
Also, companies can issue shares with special rights. Among them are the right to purchase additional shares in the future or the right to purchase shares at a price that is below the market price.
The determination of the number of shares that companies should issue
The share amount, which a company should issue, depends on several factors, such as the price of shares it creates and the amount of capital it needs to fund particular projects. Also, a company can test offers from investors. Based on this, it will determine the number of shares that the company should issue.
You should keep in mind that a company should be able to service its credit and pay dividends to investors in accordance with current regulations and legislation. This is the reason why the determination of the number of shares should be performed in such a way that it will not disturb the financial stability of the company.
Initial public offering
Initial IPO is the process by which a company sells its shares to investors for the first time. Typically, this process is performed through a sales offer in which a company offers its shares to potential investors.
Before starting the initial placement, the company should develop a sales strategy for shares. It can do this in cooperation with the investment bank, which distributes its shares. An investment bank may act as an agent too, which accepts bids for the purchase of shares from potential investors.
After the company determines the main indicators of it and its potential, the company and the investment bank begin to determine the price of shares. The price of shares is specified through the Book Building method, which determines this price. It does so based on the number of purchase orders for shares. In addition, the price of shares can be determined through the fixed price method in advance.
Secondary IPO and its value to the company
Secondary IPO is the process by which the company has shares in the market. So it decided to sell these shares to additional investors in order to obtain additional capital. This process is pretty effective for those investors who can use this moment to sell their shares.
For each company, a secondary placement may be effective if it needs additional funds to fund projects. In addition, it can increase the company’s popularity in the market and contribute to the optimization of its securities.
The issue of shares is an important tool for companies seeking to access additional funds to develop their business and improve their results. Equity offerings can also be an important step for investors who want to earn income from dividends and capital gains from selling their shares.
However, you should always consider the risks that are associated with the diffusion of ownership and commissions of intermediaries. This is the reason why companies and investors should carefully assess their needs and capabilities to learn whether issuing shares with their financial purposes is compatible.