Issuance Of Common Stock Below Market
Issuance of common stock below market value is usually done when a company is issuing new common stock. These new shares are usually offered at 10 percent to 20 percent below the actual market price of its shares, and this is basically done to make the new flotation of stock a success and attract investors. |
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Another reason for issuance of common stock below market price is for stock that is not traded that much on the stock market or stock that has a less marketability. This is usually seen in start ups or companies that are not well known in the investment circles. For these types of stock, the company has to offer discounts to investors, and this is because there is a lack of liquidity in these company. Sometimes these discounts could be as high as 60 percent or even more, and this discount automatically brings the stock below market value or price.
However, the main reason for issuing stock below market value is to raise more funds. These fund can be used for a variety of purposes but mostly companies with low liquidity use the below market value issuance of stock to ensure that they get sufficient funds to pay off short term debts and replace the same with long term debts.
Before a company decides on issuance of stock below market value, it is best to check out things with the banker and corporate lawyer. This way the company will know how much it can expect to raise with this issuance.
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