Management Notes

Reference Notes for Management

Common Stock Issue – How to Issue Common Stocks | Methods of Issuing Common Stocks

Common stock represents the ownership of the company which indicates that they are the real owners of the company. The share price of common stock is generally issued at par value(In Nepal @Rs 100) .Shares of Common Stock can be issued using various methods. Following are the three main methods of issuing common stock.

How to Issue Common Stocks

Table of Contents

a) Private Placement

Company can obtain common stock capital from a few individual or institutional investor by direct negotiation is called private placement. Private placement is normally used for preferred stock and debt financing but it can be used in common stock financing too. Private placement saves investment banker charge and flotation cost. Additionally it saves time and suitable for small scale business.

b) Public Offering

Company can sell it share to public with the help of investment banker by issuing initial public offering and further public offerings (secondary offering) after getting approval from securities and exchange commission. Public offering generates huge funds opportunities for the companies those need big investment and also create opportunities for the potential investors in the market. In public offering, Investment banker work as an agent of the company and charge underwriting commission for the service. Investment banker brings suppliers and investors together for trading of securities.

Investment banker purchase common stock from the companies and sell them to investors at higher price. In Public offering, investment banker may work under best-selling effort, traditional underwriting and self-registration. After the issuance and allotment of IPOs through public offering is done, the shares can be traded by the investors in the stock exchange at the market price.

c) Right offering

Right offering is the process of selling new additional shares of common stocks to existing shareholders at subscription price on proportionately. The common stockholders can buy additional shares (purchase additional shares) of common stock at subscription price in the capital market. Right offering is done to maintain their proportionate ownership in the corporation when new shares are issued, too protect against the dilution of their wealth or ownership and earnings, and to save flotation cost, since right offering is easy and less costly . In right offering also investment baker also serve as agent of the company to issue the right shares.

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