Methods of Public Issue:
A company's authorised capital may be raised in one or the other of the following ways:
a) PLACING
A 'placing' occurs if the company, instead of selling its shares directly to the public, arranges with a broker to sell them on its behalf.
Company.............................................Broker .......................sells the shares to..............Public
(acts as the company's agent)
The shares are said to be "placed" with the broker. A placing may be "a private placing" if the shares are to be offered for sale to selected customers of the broker (usually institutional investors) rather than made available to the general public.
b) OFFER FOR SALE
An "offer for sale" is an arrangement whereby a company sells some of its shares to a financial institution called "Issuing House". The issuing house will then re-sell the shares to the public.
Company........sells shares to.......Issuing House............Resells the shares ..........to Public
(Issues a document called "Offer for sale")
The company normally issues renounceable allotment letters to the issuing house to facilitate the transfer of specific shares to designated purchasers. This obviates the necessity of having to register the name of the issuing house in the company's register of members when shares are allotted to it and having its name removed from the register shortly afterwards when the public buy the shares.