How does a public limited company raise capital?

A public limited company (PLC) raises capital through various means, primarily by issuing shares to the public. This process typically involves conducting an initial public offering (IPO), where the company offers its shares to investors on a stock exchange. Additionally, PLCs can raise capital through secondary offerings, rights issues, or private placements. These methods allow the company to access a broad pool of investors and raise substantial funds to finance growth, expansion, research and development, or other strategic initiatives. The capital raised through share issuances provides the company with the financial resources needed to pursue its objectives and enhance shareholder value.

What are the 5 major sources of capital of a public limited company?

The five major sources of capital for a public limited company (PLC) are:

1. Equity Capital: This is capital raised by issuing shares to investors. PLCs can raise equity capital through initial public offerings (IPOs) or secondary offerings on stock exchanges. Shareholders become partial owners of the company and may receive dividends and capital gains.

2. Debt Capital: PLCs can raise funds by borrowing from banks, financial institutions, or through bond issuances. Debt capital includes loans, bonds, and other debt securities. The company must repay the borrowed amount along with interest over a specified period.

3. Retained Earnings: PLCs can reinvest their profits back into the business instead of distributing them to shareholders as dividends. Retained earnings represent accumulated profits that are retained within the company and used for funding growth, expansion, or other strategic initiatives.

4. Preferred Stock: Preferred stock is a type of equity security with fixed dividend payments and priority over common stock in the event of liquidation. PLCs can issue preferred stock to investors, providing them with a combination of debt-like features and equity ownership.

5. Convertible Securities: PLCs may issue convertible securities such as convertible bonds or convertible preferred stock. These securities can be converted into common stock at a predetermined price and time, providing investors with flexibility and potential upside through equity ownership.

What is the capital structure of a public limited company?

The capital structure of a public limited company (PLC) refers to the way the company finances its operations and investments through a combination of equity and debt. It represents the mix of different sources of funds used by the company to support its activities. The capital structure typically consists of the following components:

1. Equity Capital: This includes funds raised by issuing shares to investors. Equity capital represents ownership in the company, and shareholders receive returns in the form of dividends and capital appreciation. Equity capital can be further classified into:

• Common Stock: Ordinary shares issued to investors, entitling them to voting rights and a share in profits through dividends.
• Preferred Stock: Shares with fixed dividend payments and priority over common stock in the event of liquidation.

2. Debt Capital: This comprises funds raised by borrowing from creditors, such as banks, financial institutions, or bondholders. Debt capital includes loans, bonds, debentures, and other forms of debt securities. The company must repay the borrowed amount along with interest over a specified period. Debt capital can be categorized based on the maturity period, interest rate, and security provided:

• Short-term Debt: Borrowings with a maturity period of less than one year, such as bank overdrafts and commercial paper.
• Long-term Debt: Borrowings with a maturity period of more than one year, such as term loans and corporate bonds.
• Secured Debt: Debt backed by collateral, such as assets or property, which creditors can claim in case of default.
• Unsecured Debt: Debt not backed by collateral, relying solely on the company’s creditworthiness for repayment.

3. Retained Earnings: This represents profits accumulated by the company over time, which are retained and reinvested back into the business instead of being distributed to shareholders as dividends. Retained earnings serve as an internal source of capital for funding growth, expansion, or other strategic initiatives.

What is the Minimum capital amount of a public limited company?

The minimum paid-up capital required for incorporating a public limited company is INR 500,000. However, there is no upper limit prescribed for the same.

Auriga Accounting might assist a public limited company (PLC) in raising capital:

1. Financial Advisory Services: Auriga Accounting can provide financial advisory services to help PLCs assess their capital needs, evaluate various financing options, and develop a strategic plan for raising capital.
2. Capital Structure Analysis: Auriga Accounting assists PLCs in analyzing their current capital structure and determining the optimal mix of equity and debt financing to achieve their financial goals.
3. IPO Preparation: If a PLC plans to raise capital through an initial public offering (IPO), Auriga Accounting assists in preparing the necessary financial documentation, such as prospectuses, financial statements, and regulatory filings, to comply with regulatory requirements.
4. Valuation Services: Auriga Accounting offers valuation services to determine the fair value of the company’s equity or assets, which is essential for pricing shares or securities during capital-raising transactions.
5. Due Diligence Support: Auriga Accounting conducts financial due diligence to help PLCs identify potential investors, assess their financial health, and mitigate risks associated with capital-raising activities.
6. Regulatory Compliance: Auriga Accounting helps PLCs navigate regulatory requirements related to capital raising activities, including compliance with securities laws, stock exchange regulations, and disclosure obligations.
7. Investor Relations Support: Auriga Accounting assists PLCs in communicating with potential investors, preparing investor presentations, and managing investor relations to enhance the company’s attractiveness to capital providers.
8. Post-Raise Reporting: Auriga Accounting provides support in post-capital raise reporting and compliance, including preparation of financial reports, monitoring of capital utilization, and adherence to covenants or conditions imposed by investors.