Business
Stock Issues
Stock issues refer to the process through which a company offers new shares of stock to the public. This can be done to raise capital for various purposes such as expansion, debt reduction, or funding new projects. Stock issues can impact the ownership structure of a company and may influence its overall financial health.
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3 Key excerpts on "Stock Issues"
eBook - PDF- Rik W. Hafer, Scott E. Hein(Authors)
- 2006(Publication Date)
- Greenwood(Publisher)
As such, stock is really a security that represents an ownership claim. An important aspect of this claim to the investor is the protection offered by the corporate structure. Shareholders have limited liabilities; that is, the maximum that a stockholder can lose is his or her original investment. Should the corporation fail or be found negligent in some legal manner, shareholders cannot be called upon to put up more money than they originally invested in the corporation. Because a common stock can be viewed from two different perspectives, that of the firm and that of the investor, it is useful to examine these more carefully. From the perspective of the firm, why does a firm obligate itself by issuing common stock? Also, what factors influence the size of the stock issuance? From the perspective of the investor, why would an investor give up funds for a pro rata claim on a business? We will examine the different means by which investors can gain from owning stock. STOCK AS A FUNDING SOURCE Why would a business agree to give investors a claim against its future earnings? The answer is simply that the firm trades partial ownership in order to use the funds that it gets from the investor. When shares of stock are sold for the first time, this activity is referred to as an initial public offering (IPO). In such an offering newly created shares are being sold for the first time. As economies are growing and opportunities are being presented to exploit new technologies, businesses often need injections of funds in order to expand. Issuing stock has been a great source of funds for business growth and development. THE INITIAL PUBLIC OFFERING (IPO) An initial public offering is the first time that the general public is given the opportunity to buy stock and invest in a firm. In addition to being a first offering, an IPO is a public offering. This means that anyone willing to pay the asked price for a share is given the right to buy a share of the stock.
eBook - PDF- Jerry J. Weygandt, Paul D. Kimmel, Jill E. Mitchell(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
For example, by stockholder approval, IBM has dropped its preemptive right for stockholders. Dividends New shares issued Before After 14% 14% Lenders Creditors Stockholders GON Corp. Going out of business Vote in election of board of directors at annual meeting and vote on actions that require stockholder approval. 1. Share the corporate earnings through receipt of dividends. 2. Share in assets upon liquidation in proportion to their holdings. This is called a residual claim because owners are paid with assets that remain after all other claims have been paid. 4. Keep the same percentage ownership when new shares of stock are issued (preemptive right 1 ). 3. Stockholders have the right to: ILLUSTRATION 11.4 A stock certificate Source:The Franklin Life Insurance Company 11-8 CHAPTER 11 Corporations: Organization, Stock Transactions, and Stockholders’ Equity Stock Issue Considerations Although Facebook incorporated in 2004, it did not sell stock to the public until 2012. At that time, Facebook evidently decided it would benefit from the infusion of cash that a public sale would bring. When a corporation decides to issue stock, it must resolve a number of basic ques- tions: How many shares should it authorize for sale? How should it issue the stock? What value should the corporation assign to the stock? We address these questions in the following sections. Authorized Stock The charter indicates the maximum number of shares that a corporation is authorized to sell. The total amount of authorized stock at the time of incorporation normally anticipates both initial and subsequent capital needs. As a result, the number of shares authorized generally exceeds the number initially sold. If it sells all authorized stock, a corporation must obtain consent of the state to amend its charter before it can issue additional shares. The authorization of capital stock does not result in a formal accounting entry.
eBook - PDFFundamentals of Financial Instruments
An Introduction to Stocks, Bonds, Foreign Exchange, and Derivatives
- Sunil K. Parameswaran(Author)
- 2022(Publication Date)
- Wiley(Publisher)
CHAPTER 3 Equity Shares, Preferred Shares, and Stock Market Indices INTRODUCTION Equity shares, or shares of common stock of a company, are a type of financial claim issued by the firm to investors, who are referred to as shareholders. In return for their investment, the shareholders are conferred with ownership rights. A firm must have a minimum of one shareholder, and there is no limit to how many shareholders a firm may have. Correspondingly, there is no restriction on the total number of shares that may be issued by a firm. Large corporations have a large number of shares out-standing, and consequently their ownership is spread over a vast pool of investors. Shareholders are part owners of the company to whose shares they have subscribed, and their stake is equal to the fraction of the total share capital of the firm to which they have contributed. At the outset, when a firm is incorporated a stated number of shares will be authorized for issue by the promoters. The value of such shares is referred to as the authorized capital of the firm; however, the entire authorized capital need not be raised immediately. In practice, often a portion of what has been authorized is held for issue at a later date, if and when the firm should require additional capital. Thus, what is actually issued is less than or equal to what is authorized and the amount that is actually raised is referred to as the issued capital . The value of the shares that is currently being held by the investors is referred to as the outstanding capital . In most cases, the outstanding capital is synonymous with the issued capital. In the event of a company buying back shares from the public, however, the outstanding capital will decline and consequently will be less than what was issued. Shareholders are entitled to share the profits made by the firm, as they represent the owners of the venture.
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