Reviewed by Sep 30, 2020| Updated on
The process of offering securities to raise funds from investors is called an issue. The companies offer stocks or bonds to investors as a way to finance their businesses. The word ""issue"" also refers to a series of stocks, shares or bonds that have been offered to the public to accumulate funds for the business.
The securities can be offered in multiple ways. Companies offer its securities to the public under IPO (Initial Public Offering) for the first time, or a seasoned issue, in which an established organisation offers additional securities to the public. Generally, an issue is referred to as a particular offering. In case the organisation needs capital to stay in business, then it uses the option to procure funds through selling its stocks or issuing its bonds.
In the secondary issue, the board of directors of a company votes to issue more shares and increase the share capital of the company. This increases the number of shares available in the market for trading. The net proceeds received from the trading of such shares is directly sent to the company.
Similarly, if a company wants to move its existing debt and create new debt at the same time, it might decide to issue bonds or debentures. This way, the company borrows money from investors and repays it with interest. The interest is a tax-deductible expense that reduces the company's cost of borrowing.
The organisation needs to consider its business goals before deciding on whether to sell stocks or issue debentures.
It should find a good balance between both shares and debentures, that will avoid the high cost of capital.
Money from shares doesn't need to be repaid, nor does the interest need to be paid as it does with bonds or debentures. However, each new issue of stock can dilute the ownership of the existing owners; there should be careful watch on the adequate limit of dilution.