5.2 Raising of share capital

METHODS OF ISSUE OF SHARES

1.Direct Offer to Public

This is done by publishing a prospectus inviting the public to subscribe for the shares. If this is done, the Company may have to arrange for the issue to be underwritten by negotiating with an issuing house to take up shares that will not have been taken up by the public.

2.Offer for sale

Under this method the Company may sell the whole of the shares to an issuing house which in turn publishes a prospectus inviting the public to purchase the shares at a higher price to cover for issue expenses and earn a profit. If the Company adopts this method, then it has no responsibility for the success of the issue as it will already have a binding contract whereby the issuing house has subscribed or agreed to subscribe for securities thereby in effect underwriting the whole issue.

3.Offer by Tender

This is where tenders are invited and the shares are sold to the highest bidder. It is meant to ensure that the highest possible price is obtained and to discourage stags who apply for speculative purposes

4.Placing

In this case, the Company arranges for the issuing house to purchase the securities and places them with its clients usually in fairly substantial blocks. This method usually favours large institutional investors e.g. NSSF small investors are however protected in a way by the securities exchange which requires such Companies to make a substantial proportion of the securities available to the general public.

RIGHTS ISSUE

This is an issue of shares by the Company to existing members who are given right to acquire shares in proportion to the existing shareholding. This minimizes floatation expenses and also the assistance of issuing houses is dispensed with. Shareholders who do not exercise their rights in this regard will have their rights sold to the open market.