Corporate Accounting

What is the Procedure to Issue Shares for Capital?

Companies issue shares to raise capital to finance their operations, such as expanding their business, developing new products, or entering new markets. 

When a company issues shares, it is essentially selling a piece of ownership in the company to investors. In exchange for their investment, shareholders receive a share of the company’s profits, or dividends, if the company is profitable.

Typical Procedure to Raise Capital Through Shares

Passing a Special Resolution

The special resolution must be passed by a majority of not less than 75% of the votes cast at the general meeting. The resolution must also be approved by the relevant regulatory body.

Filing a Prospectus or Statement in Lieu of Prospectus

The prospectus or statement in lieu of a prospectus must be filed with the relevant regulatory body, such as the Securities and Exchange Commission (SEC) in the United States or the Financial Conduct Authority (FCA) in the United Kingdom.

Receiving Applications for Shares

The subscription list will be open for a period of time, typically a few weeks. Applications for shares must be made in the prescribed form and must be accompanied by the application fee.

Allotment of Shares

The allotment of shares is usually done by a board of directors or a committee of the board. The board will consider the applications received and will allot shares on a basis that is fair and equitable to all applicants.

Issuing Share Certificates

Once the shares have been allotted, the company must issue share certificates to the shareholders. Share certificates are legal documents that certify the ownership of shares.

It is possible to issue shares either in exchange for cash or for some other kind of payment.
In most cases, money is exchanged for the issuance of shares. The corporation has the option of calling the money owed on the shares all at once, in two or more instalments, or in several instalments.

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