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2.5Methods of issuing ordinary shares
There are several methods through which companies can issue ordinary shares (also known as common shares or equity shares) to raise capital. Here are some common methods:
- Initial Public Offering (IPO): An IPO is the process of offering shares to the public for the first time. Companies seeking to go public work with investment banks to underwrite the offering and determine the share price. The shares are then sold to institutional and retail investors through the stock exchange.
- Follow-on Public Offering (FPO): A follow-on public offering occurs when a company that is already publicly traded issues additional shares to the public. This method is used to raise additional capital for expansion, acquisitions, or debt repayment. The shares are offered and sold to investors in the secondary market.
- Private Placement: In a private placement, shares are offered and sold directly to a select group of institutional or accredited investors, such as private equity firms, venture capitalists, or large institutional investors. This method is often used by companies that do not want to go through the regulatory requirements and public disclosure associated with an IPO.
- Rights Issue: A rights issue allows existing shareholders to purchase additional shares in proportion to their existing holdings. The company offers the new shares at a discounted price to the current shareholders. This method gives existing shareholders the opportunity to maintain their ownership percentage in the company and participate in its growth.
- Employee Stock Ownership Plans (ESOPs): ESOPs are programs that allow employees to acquire shares of the company they work for. These shares are usually offered at a discounted price or as part of an incentive or compensation plan. ESOPs can help align employee interests with company performance and create a sense of ownership and loyalty.
- Convertible Securities: Companies can also issue convertible securities, such as convertible bonds or convertible preferred shares. These securities give the holders the option to convert them into ordinary shares at a predetermined price or based on certain conditions. Convertible securities provide companies with a flexible financing option and investors with the potential for capital appreciation.