How to Issue Bonds & Stocks
You need to raise money for investment purposes and you ran out of your cash that could be generated from the private investors. You will have to take the firm to public and raise money from general public by issuing stocks or bonds. If bonds are issued, the ownership of the firm isn’t diluted because bonds are just like a loan and are given a particular defined percentage of interest at the end of the year. On the other hand, stocks dilute the ownership of the firm but the firm is not bound to pay off any cash if they don’t want to; depending on the decision of the board of directors.
Instructions
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1
You will have to look for an investment bank that settles down into your scenario and doesn’t conflict with your firm vision or plans etc. There are different banks available like JP Morgan, Goldman Sachs and Merrill Lynch etc. You can discuss to them and they will offer you two scenarios; either they will be responsible for the issuance of the entire lot of stocks and bonds you want to issue or they will not guarantee anything and try their best to sell the most of them. In the former case, the bank will buy the leftover stocks or bonds that weren’t sold; however, the leftover stocks or bonds will be given back to the firm in the latter case.
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2
Make sure the money is transferred to your bank after issuance of bonds. You don’t need anyone’s permission to issue bonds so you just have to discuss the scenario with the investment bank who will handle all the legislative and paperwork pain for you. So, you will just have to pay the fees to the investment bank for their services.
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3
In the case of stocks, the investment bank will have to file an application to the Securities and Exchange department. It will contain all the forecasts and investment projects that you are seeking finance for. They will go with a proposal containing all sorts of information required by the SEC.
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SEC will look after and evaluate your application and response the bank if they want to authorize everything or not. It is usually a “yes” because banks know the art of capturing the attention of SEC personnel.
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After the authorization, the bank will contact you to discuss a possible date for the Initial Public Offering. Stocks will go public on that day and bank will handle everything.
