APPRAISAL OF ISSUE OF SHARES AS A SOURCE OF FINANCE IN PUBLIC LIABILITY COMPANIES

CHAPTER ONE

1.0            INTRODUCTION

There are various sources of finance available for companies. Companies can rise finance by borrowing from financial institution (i.e commercial banks), friends, relative or even suing personal savings.  Also finance can be raised by issue of shares. A share is the interest of a shareholder in the company measured by a sum of money for the purpose of ability and interest.  The main types of shares are

–                     Ordinary shares (owner’s equity)

–                     Deferred or founders hares and

–                     Preference shares.

However, the companies act of 1968 do not allow all companies to issue shares.  Companies which issue shares are those quoted in the stock exchange. Companies quoted in the stock exchange are those incorporate under the companies and allied matters decree 1990 (AMD) under co-operate affairs commission. Furthermore, when a company had been incorporated, it proceeds with the task of raising fund or capital by issuing prospectus to the general investing public. A prospectus is an invitation, circular, notice and advertisement to the public to subscribed or purchase any securities of a company.  The essence of the prospectus is to enable the investing public (prospective investor) have laid down detailed possible information about the affairs of the company they intend to invest in.  companies which are quoted in the stock exchange raised their fund through the issue of shares and they enjoy many benefits like limited liability companies but only few companies are quoted in the stock exchange.  The reason may be that management are ignorant of the benefit associated with the incorporation and that they are not enlightened or being adequately informed about the roles of the Nigerian stock exchange. Also shares of some companies which are quoted are not subscribes for, it may be that the company has no sound financial base or that it is not profitable. The high standard requirements provided by the companies act 1968 many also be the reason why companies are reluctant in quoting their shares in the stock exchange market.  Source of these requirements are that any company seeking quotation in the stock exchange market must have up to 500 share holders and paid up share capital of N600,000, Moreover, securities market growth in Nigeria is handicapped mainly because of the  buy and keep attitude of the investors, lack of exposure and  awareness on the part of Nigerian public in respect of shareholding and then the indifferent attitude of indigenous companies towards the activities of the stock exchange.

1.1     STATEMENT OF THE PROBLEM

Issue of shares is one of the sources of finance available for companies. Companies which are quoted  in the Nigerian stock exchange market issue shares to the public for the purpose of raising funds or finance.

1.                 Quotation or incorporation is open to every established companies, still only few companies are quoted in the Nigerian stock exchange.  This could be because the Nigerian stock exchange do not perform their role adequately or because the management are not adequately motivated or mobilized

2.                 Some companies shares which are quoted in the Nigerian stock exchange are not being subscribed for this might be due to insufficient financial base of the company.

3.                 companies which are not quoted in their companies in order to evade tax and their profit are use for the expansion of the business.

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