Stocks and bonds are an effective way of generating funds for a business.
When trying to raise money for a corporation, there are two scenarios that a company can employ. The first is to issue bonds which means that they are asking for loans, but instead of getting a loan from a bank, they get smaller loans from people who purchase these bonds. The other scenario is to issue stock which is the sale of chunks (stock) of their company.
Instructions
Issuing Bonds
1. Find an investment bank who has the capital and business savvy to find investors to lend to the issuer. What the investment bank does is draft the paperwork for a bond issuing and then sell them out to investors for the business in need of money.
2. Hold a preliminary offering meeting where you, along with the investment bank, court potential investors. During this meeting, the investment bank will explain to these investors why they should invest their money and buy your bond. They'll explain why they are a worthwhile investment.
3. Hold another meeting a week after the marketing for the sale of the bonds. This is where the investors who believe your company is a worthwhile investment will come and buy up bonds. Depending on the liquidity of the investors will determine how many of them are going to be purchased.
4. The money is transferred to the investment bank and then is transferred to the company that issued the bonds.
Issue Stocks
5. Hire an investment bank, such as Merrill Lynch or Goldman Sachs, to submit a registration to the Securities and Exchange Commission (SEC). In this registration, include information on what kind of security is going to be offered (stock in this case), management style, legal history, what the money will be used for and any other information to make the registration more complete.
6. Meet with potential investors. What you are doing here is taking the prospectus and showing potential investors why you are a worthwhile investment. What is not included, though, is the share price and the release date. Typically, the investment bank brings together a series of mutual funds and hedge funds that they have done business with in the past and presents your stock to them. They do their best to sell it to the mutual and hedge funds.
7. Determine a price for the stock once the registration comes back with an acceptable release date. Because the investment bank makes a commission on each share sold, both you and the bank are going to want to maximize the number of shares of stock sold. Therefore, the bank will suggest a price that maximizes sales and profits. It is important not to release too high, but at the same time, if you release too low, it might not be deemed "safe" in other investor's eyes.
8. Watch, on release date, as the price of the stock fluctuates and the funds begin to flow into your account to begin using for the expansion of your corporation.
