Issue through Prospectus
A common method followed by corporate enterprises to raise capital through the issue of securities is by means of a prospectus inviting subscription from the investing public. Under this method. the issuing companies themselves offer directly to the general is a fixed number of shares at a stated price. which in the case of new companies is invariably face value of the securities and in the case of existing companies, it may sometimes include amount, if any. Another feature of public issue method is that generally the issues are written to ensure success arising out of unsatisfactory public response.
The public issue method through prospectus has the advantage that the transaction is carried on full light of publicity coupled with approach to the entire investing public. Moreover, a fixed of stock has to he allotted among applicants on a non-discriminatory basis. The issues are distributed and the danger of an artificial restriction on the quantity of shares available. It would ensure that the share ownership is widely-discussed, thereby contributing to the of concentration of wealth and economic power.
A serious drawback of public issue, as a method to raise capital through the sale of securities is a highly expensive method. The cost of flotation involves underwriting expenses and other-administrative expenses. The administrative cost includes printing charges of a advertisement/publicity charges, accountancy charges, legal charges, bank charges by listing fee. registration charges, travelling expenses, filling of document charges, registration fee and postage and so on. In view of the high cost involved in capital, the public issue method is suitable for large issues and it cannot be availed of in small issues.