Business Ethics
Business
Business Ethics
Issuance of equity is the sale of new shares or equity of a company to its investors. Issuance of equity can be privately between investors and the firm or it may be publicly where firm register their securities and sale & purchase takes place in share market. Issuance of equity is a costly way of raising capital. There are a number of factors that can increase the cost of issuing equity for Apex e.g. charges paid to underwriters, an increase in the supply of shares may decrease the price pressure, there may be a time delay in registering equity and asymmetric information related to issuance of equity due to which stock price decreases. These costs can vary depending upon the characteristics of firm and type of equity. In case Apex involves in Issuance of equity, this will increase the financial base of Apex. By issuing equity, Apex will increase its financial capabilities. Moreover, companies are not legally bound to pay dividends. In case, Apex has to face financial difficulty, it can suspend or reduce its dividend payments. On the other hand, Apex can face disadvantages by issuing equity. In case, shares issued by Apex will not be tax deductible. Moreover, Floatation costs of shares are usually higher. (Bethel & Krigman, 2008)
Initial Public Offering (IPO) is the sale of firm’s common shares for the first time to investors or public on the stock exchange. The idea behind IPO is to raise the capital of the firm, as it is the most effective way of increasing capital. On the other hand, companies have to follow regulatory compliance before IPO. The process of IPO starts when a company submits registration statement to the Securities and Exchange Commission (SEC) under the Securities Act 1933. After the submission of the registration statement by the company, the SEC investigates it and gives approval for full disclosure. Then the underwriter issues the preliminary prospectus. At the time of the stock offering, official prospectus was issued. After the approval of the SEC, the company then decides the price and date of initial public offering. ("Sec regulations,")
In order to raise capital for company, there are two ways i.e. internal financing and external financing. Internal financing covers capital raised by doing business activities e.g. retained earnings or annual profits or selling any tangible assets like land or building etc. On the other hand, and external financing cover raising capital from outside resources by giving equity to investors or through debt. In debt financing, companies take loans from different sources mainly banks. The most common example is financed through bonds that are bound to repay cash and interest after the maturity date. Moreover, companies can sell bonds to other investors. Equity financing involves selling the shares of firms and also known as equity issuer. Equity can sell in two ways i.e. it can be sold to any specific investor by doing a private arrangement or it may involve public so that equity can be sold publicly. The main advantage of external financing is that it allows companies to utilize its own financial resources for other purposes. A firm can use its financial resources for paying cash to its vendors that will help in improving the credit rating of the company. Venture capital is another type of equity financing. Under this method firms seeks capital from other firms and offers its equity. A firm goes for venture capital if it thinks that it is not feasible for them to raise capital from traditional resources e.g. taking loans from banks or selling equity to public. Venture capital will be more preferable for Apex as the cost associated with an initial public offering is higher than venture capital financing. In the given scenario, venture capital will be more preferable. ("Process of venture,")
References
Bethel, J., & Krigman, L. (2008). Managing the costs of issuing common equity: The role of
registration choice. Quarterly Journal of Finance and Accounting, 47(4), Retrieved from http://www.questia.com/library/journal/1G1-198289105/managing-the-costs-of-issuing-common-equity-the-role
Sec regulations. Retrieved from http://www.gopublicusa.com/regulations.htm
Process of venture capital funding. Retrieved from
http://www.paxcapital.com/an-overview-of-the-process-of.html
