Method Of Selling Shares – The most important source of long-term capital for a firm is the sale of ordinary shares. Initially, a firm starts a business with the capital of the entrepreneurs, but later it has to sell the shares for various reasons including expansion and development of the firm.
Process of selling shares -No matter how many types of shares and how many times the shares of the firm are sold, the same process has to be followed every time. The process of selling shares can be divided into two parts. One of which is the initial functions of the share sale and the other is the final functions.
In this article briefly Discuss – the method of selling shares. Discuss the private placement. Or, explain the method of financing through common shares. Explain the financing method through Common Stock and Discuss the impact of common shares as. Lets See –
Both of these functions are discussed below :
1. Primary Activities:
The following are covered by Primary Activities and Primary Activities.
i. Decision Making: The first step in selling a firm’s shares is to make a decision regarding the sale of shares. In this regard, the final decision regarding the sale of shares has to be taken at the meeting of the board of directors and it has to be formally informed to the share sale management committee.
ii. Submission of Registration Statement in the Securities Exchange Commission (SEC) Upon initial decision of the Board of Directors, the decision has to be submitted to the SEC along with the application.
iii. Investment Bank Selection (Selection of Investment Bank): After obtaining permission from the Securities and Exchange Commission, the firm will take refuge in the Investment Bank. Negotiate with different banks – Negotiate with the bank that provides the most benefits.
iv. Issue of Prospectus: After entering into an agreement with the investment bank, the firm will issue prospectus in the market for the purpose of selling shares through the bank.
A deed of sale is a public limited firm that sells its shares or debentures to the public for the purpose of raising capital and other details. After the completion of the above functions, the company starts the second phase of work i.e. the main work.
The second stage of work involves selecting the method of sale and selling the shares. It is discussed below. Similar post –
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2. Ultimate Functions:
Ultimate Functions refers to the method:
- i. sale and selection of shares.
- ii. There are many ways to sell shares.
- iii. The methods are discussed below.
- iv. Maximum Effort or Best Effort Method Shelf Article Method
- v. Right or Right Share Issue Procedure , Personal presentation method
These methods are discussed below:
1. Underwriting Method:
A liability customer or organization assumes liability on the basis of a specific commission for the sale of shares and debentures of the company. Legally the amount of commission is at a certain rate of shares or debentures. Liability in such cases is to be borne by the customers themselves if they fail to sell shares or debentures.
That means the customer has to buy the remaining shares and debentures. In other words, in this method an investment bank buys all the shares of the company and sells them to different individuals or organizations. The difference between buying and selling these shares is the profit of the bank. This is a very ancient method.
2. In the Best Effort Method,
The investment bank assumes the responsibility of selling only the shares without mentioning them. The company pays as many shares as they can sell to the public.
Any shares that remain unsold will be returned to the issuing company and they will receive a commission in exchange for the sale. This method has been named as the highest effort method as the banks make maximum efforts to sell the shares.
3. Self Registration:
This is an agreement between the issuing company and the underwriter. In this case, the underwriter approves a certain period of time (1 month, 2 months) for the sale of shares.
The shares are then sold through the underwriter through short registration as required. This method is called step or shelf registration system as the shares are sold step by step.
4. Right issue method:
After the company decides to sell new shares, its existing shareholders are given a chance. If the money is raised by selling shares among the existing shareholders, it is called SHOR ON Itel. Basically, this is done according to the pre-MTV rights of the shareholders.
5. Private Placement:
Individual representation is a non-negotiable method of selling shares. This is with a certain investor or small investors. Since there is no need for a negotiator here, the investment bank or any other representative establishes direct communication between the business entity and the investor and assists both in terms of borrowing terms.
The method by which a company sells its shares directly. As a result, it is also called direct method.
Evaluate the Ordinary Share As a Source of Fund:
Evaluate the Ordinary Share as a Source of Fund Therefore, in order to evaluate common stock as a source of funds, it is necessary to discuss its various aspects and nature. They are discussed below:
1. Unpaidable: When raising capital from different sources for a business, it has to be paid within a certain period of time. But ordinary shares do not have this obligation.
2. Liability free: If you take a loan for a business, you have to pay interest for it. But there is no such obligation in the case of ordinary shares. That is, if there is profit, you have to pay dividend and if there is no profit, you do not have to pay dividend. Share capital liability financing. It can be said that holding
3. Security less: If you want to take loan capital for business, you have to pay different types of security. But no collateral is required for the use of ordinary share capital.
4. Increase the power of loan taking: In simple words, the higher the common share capital of the organization, the higher the borrowing capacity of the organization. This is because the ability to repay the loan is increased by the share capital.
5. Risk free: In case of borrowed capital, it is compulsory to pay interest on the loan. Which helps increase business risk. .
6. Control: As a result of financing received through ordinary shares, control power is in the hands of the owners of the company. This reduces the risk of third party control and reduces adverse effects and instability in the business. The growth of the company is assured.
If you are financing through ordinary shares, you have to suffer some difficulties which are discussed below.
1.Excess cost: To sell shares to the public, one has to go through a process. As a result, the cost of raising capital is high and time is wasted.
2. Problems in excess capital: If for any reason the company raises excess capital, it is a problem for the whole life of the company as it cannot be repaid within the lifetime of the company.
3. Loose the control of the company, When a company increases the amount of capital by issuing new shares, the control of the previous owners of the company decreases.
In view of the above discussion, it can be said that ordinary share capital as a source is the most convenient and best source. Q: Explain how ordinary shares can be valued as a source of funds. Explain how to evaluate the Common Stock as a source of found. Related: Principles of Business Finance. Top Two Types Of Finance. Importance of Business Finance.
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