How to Use Stock to Create Capital for a Corporation
Building a corporation takes so much capital that very few individuals can afford to keep their own companies private. When a company needs millions of dollars to fund further research and development, create strong marketing and attract top minds, it can choose to go public and use the power of a stock offering. When companies go public, they sell tiny pieces of ownership in the corporation called "stock." The move earns companies some immediate capital, but it can also give away a certain degree of control.
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Things You'll Need
- Computer with Internet connection
- Company's financial information
- Investment Banker
Instructions
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Register With the SEC
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Register with the Securities and Exchange Commission (SEC), a government entity that regulates stock offerings and other business-associated endeavors, before you use public stock to create capital for a corporation.
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Create a prospectus (a packet of all pertinent business information) and attach additional information about your company. You can do this online through the SEC Web site (see Resources below).
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Wait for your registration to be approved before taking further steps.
Understand the Alternative
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Consider selling stock in a private offering, rather than a public offering.
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Research the limitations of private offerings. If you want to remain private and sell stock by undergoing a private stock offering, you are very limited to whom you can sell stock. Usually you can sell to 30 people or less, so this is generally not a way to raise millions.
Begin the Process
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Make a list of investment banks that have arranged Initial Public Offerings for other businesses in your industry. Use phrases such as "underwriter [your industry here]" and "investment bank [your industry here]" in a search engine.
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Consider a big name investment bank such as Morgan Stanley or Piper Jaffray. Ask to be connected with their investment banking group, and make an appointment with an investment banker to discuss going public with your corporation.
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Approach an investment bank, and ask it to "underwrite" (or arrange) your first stock sale, which is called your Initial Public Offering (IPO).
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Force the banks to compete to underwrite your stock offering. Consider what each one can do for your company and how they value your corporation.
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Tips & Warnings
Approval and underwriting (preparation and issuance of the public stock offering) can take months.
Choose the investment banker with whom you build the best rapport. You may want to work with that banker again to release your subsequent offerings.
Once you go public, your company's every decision will be scrutinized. Stockholders buy stock in your company because they believe it has a promising future, and they want to make certain it's a good bet.
To avoid liability when dealing with stock, consult with a practiced corporate attorney who has helped a number of corporations obtain capital through stock offerings.
