Raising Capital For Businesses

By Author: Ibrahim Machiwala
Total Articles: 396
Comment this article

Stock exchange or bourse is a mutual organization which provides facilities for stock brokers and traders, in trading company stocks and other securities, and for the issue of redemption of securities and other financial tools and capital events like the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less linked to such a physical place. Electronic networks run modern markets are, providing them great speed and cost of transactions. Stock exchange is often called the most important element of a stock market. The Demand and Supply in the stock markets is attracted by number of factors that affect the price of stocks.

History of stock exchanges:
In 12th century France, the courratiers de change were concerned with managing the debts of agricultural communities on behalf of the banks and these men also traded in debts. These men were ...
... the first brokers.

In the middle of the 13th century, Venetian bankers traded in government securities. In 1351, the Venetian Government outlawed spreading rumors about lowering the price of government funds. Because of this rumor people in Pisa, Verona, Genoa and Florence also started trading in government securities which was possible because there were independent city states ruled by a council of powerful citizens during the 14th century.

Raising capital for businesses:
The Stock Exchange helps current and newly-formed companies raise capital for building and expanding their business through selling shares to the investing public.

Mobilizing savings for investment:
When people draw their savings and invest in shares, it leads to a more balanced allotment of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized to promote business activity that benefits several economic sectors like agriculture, commerce and industry, resulting in a stronger economic growth.

Creating investment opportunities for small investors:
The Stock Exchange provides opportunity for small investors like the big investors to own shares of the same or different companies.

Government capital-raising for development projects:
Governments at various levels may decide to borrow money for financing infrastructure projects like sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds are raised through the Stock Exchange where public buy them, thus loaning money to the government. The issuance of such municipal bonds can prevent the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Listing requirements:
Listing requirements are the set of conditions forced by any given stock exchange upon companies that want to be listed on that exchange.

Requirements by stock exchange:
For companies to have their stock and shares listed at the stock exchange have to meet certain requirements of the exchange. But requirements vary in different exchanges.