Shares represent certain ownership of a company. When an individual buys shares in a company they become the co-owners of the company. Every person who owns shares in a company is called the shareholder of the company. However, the owner of the company usually holds the largest number of shares in the company. All the shareholders together form the decisions for the company.
Each share has a certain price. Price times the number of shares evaluates the market price of the company. Companies that allow their shares to be bought are known as public companies. Shares are perhaps associated with the stock market, one should be well versed with the stock market while buying shares.
In simple terms, the stock market is market where buyers and sellers meet to exchange the shares/stock of the public listed companies. The share prices depend upon the price the market maker has bought the shares and at what price does he intend to sell them in the market.
The basic reason why people buy shares of a company is to make money and earn profits. The idea is to buy the shares at low and sell them at high prices. Buying shares is a good investment if the company is making substantial amounts of profits and paying dividends.
- Find a trustable broker
- Open an account
- Invest in the account
- Find the stocks
- Buy the shares
- Analyze and review your position in the shares.
This process proves beneficial to every budding investor and also to the existing shareholders in the market.
The public listed companies issue their shares to gain investment from various shareholders or potential shareholders.This investment is useful for the growth and development of the company.
Issuing the shares to the public commonly known as IPO or Public offering is an escape from the venture capital or other investors.
Nothing to do with Banks
Offering shares to the public gives the company a brand name and this increases the investment that they receive. This proves to be a cheaper source of funding as compared to bank loans, etc
Companies usually do not need to issue their shares but they do it to gain investment from the shareholders. In this case, the company does not have to pay the shareholders back for buying their shares.
Instead, they give them certain ownership of the company and this leads to the perpetuity of increasing funds for the company. Thus, the companies issue shares by diluting their interest in ownership in the company.
Issuing the shares to the public gives the company a good brand image. Selling shares and being transparent with the shareholders will give a good name to the company. This will increase future investment for the company.
Issue of Prospectus
Before issuing the shares, the prospectus must be issued. The prospectus is an invitation to the public to buy the shares that are going to be issued soon in the stock market. There is a certain range of minimum subscription that has to be reached for the allotment of the shares.
The prospectus must include all the details of the company i.e. financial structure, loss and profit statements, balance sheets from the previous years, etc. Mostly all the information is written so that the share buyers are convinced to buy the shares.
The company must also give out how the funds will be used and how each shareholder will profit if they buy the shares of the company.
Applications from Potential Investors
After the prospectus is out, the prospective investors will be eligible to apply to buy the shares. When the application is filled, the investor must deposit a certain amount of application fees in the allotted bank account.
The application should stay open for a maximum of 120 days. If in these 120 days the application subscription does not reach then the company has to cancel the issue of shares. The application amount goes back to the investors in 130 days.
Allotment of shares takes place once the company reaches minimum subscription. There are always more than minimum subscriptions. Pro-data allotment proves useful for such cases.
Letters of allotment go to the respective person who has been allotted the shares. Then there is a formal signing of contact between the investor and the company. After the allotment the company can take the investment money according to is wish either in instalments or at a once.
The rejected applicants will get their ‘letters of regret’ later.
Family or Friends
You can also issue your shares with your friends and family for your company. This is a better choice than accepting loans from your family members.
There is no obligation for repayments to your family or friends. But making a formal agreement is necessary to avoid any feuds in the future.
If the employees take a stake of ownership in the business, it will be very beneficial for the growth and development of the company. The employees will work more efficiently if they are they co-own the company.
Great! You have reached the end of the article. I hope this information is beneficial for you to invest in shares or to issue shares of your company.
Best of luck!