Why do companies issue shares to the public?
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The answer to this question is, companies issue shares because they need more money to finance their expansion and to function efficiently. The investor buying these shares get part ownership in the company and company gets the needed money which it can use for its operations.
The main motto of companies behind share issuance is to raise capital. Companies need money for their operations and expansion and equity shares help them with the same. On the other hand, the investor who buys these shares gets part ownership in the company.
How do companies issue shares?
Issue of Prospectus, Receiving Applications, Allotment of Shares are three basic steps of the procedure of issuing the shares. The process of creating new shares is known as Allocation or allotment. Let us see the two types of shares of a company and the procedure for issue of shares that a company must follow.
The issue of shares by Public Limited Company is governed under the provisions of Companies Act 2013. Public Company got incorporated under this act with limited liabilities of its members. A public company can offer its shares to the public in several ways that are described in detail in this blog henceforth.
The various steps involved in public issue of shares are enumerated below:
- Compliance With The SEBI Guidelines.
- Holding of General Meeting.
- 3 Intimation To Stock Exchange.
- Appointment.
- Drafting of Prospectus.
- Approval of Prospectus.
- Approval of Board of Directors.
- Registration of Prospectus With Roc.
How are shares issued to the public?
Follow on public offering is when an already listed company makes either fresh issue of shares to the public or offer for sale existing shares to the public by way of an offer document. Offer for sale is typically allowed when the company must satisfy listing or continuous listing obligations.
Share Issue This involves dividing the company’s ownership into shares and distributing them to new investors, employees or existing shareholders. Whether you own a public or a private company, you can issue any number of shares, provided you issue a share certificate to each new shareholder.
Are companies required to go public?
A company should go public when it qualifies under one of the listing standards and meets other qualifications for initial listing of operating company shares on a stock exchange, and its SEC registration statement is effective.
How does a public company issue new shares?
The people who are willing to pay that price has already bought as many shares as they want. The company does this to raise capital, and depends on the shares actually selling for this to work. So, they issue shares at below marked price to attract buyers and the shares get diluted.