Plekhanov Russian Economic Academy The theme of the report: "Going public and the dividend policy of the company." By Timofeeva M. V. The supervisor: Sidorova E. E. Moscow 2001. Contents
    
    Introduction I. 'Going Public' and the Securities Market3 1. 'Going Public' 2. Types of Shares 3. The Stock Exchange and the Capital Market 4. Procedure for an Issue of Securities 5. Equity Share Futures and Options II. Dividend Policy and Share Valuation 1. Dividends as a Residual Profit Decision 2. Costs Associated with Dividend Policy 3. Other Arguments Supporting the Relevance of Dividend Policy 4. Practical Factors Affecting Dividend Policy 5. Alternatives to Cash Dividends
    Summary
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     3 4 4 5 6 7 7 9 9 10 11 12 12 14 15 Introduction
    In this report we focus on the long-term financing by issuing shares and dividend policy of the company. We consider the institutional design of capital market, Stock Market Exchange and Alternative Investment Market; fundamental theories of paying dividend and factors which influence Dividend Policy of the companies.
    The main objective of this report is to develop a better understanding of the problems faced by start-up firms seeking capital financing and paying percentage (dividends). In addition, we try to identify the consequences of shortcoming and overplus of the dividend payouts for value of corporation (for value of share) and individuals (shareholders).
    The urgency of this question is obvious, because firms need capital to finance product-development or growth and must, by a lot of factors (interest rate, time period and etc), obtain this capital largely in the form of equity rather than debt. So the issuing of shares and dividend policy is one of the widest research overseas and I hope Russian economists don't be backward in that list. I. 'Going Public' and the Securities Market 1. 'Going Public' Most private companies that experience the rapid growth have reached the stage when existing shareholders' private resources are exhausted, retained profit is insufficient to cope with the rate of expansion, and further borrowing on top of your current amount of loans will probably be resisted by lenders until you have a more substantial layer of equity capital. One solution to this financial problem is to retain the services of a financial intermediary - usually a merchant bank - to find a few private individuals or financial institution such as an insurance company or an investment trust that is willing to subscribe more capital. This is known a private placing. And, of course, there are some advantages and disadvantages of going public.
    Advantages * access to the capital market and to larger amounts of finance becomes possible by having shares quoted on the Stock Exchange; * institutions are more likely to invest on the public listed company, and additional borrowing becomes possible; * shareholders will find it easier to sell their shares in the wider market; * the company attains a higher financial standing; * provides an opportunity for public companies to introduce tax-efficient employee share option scheme.
    Disadvantages * cost of a public flotation of shares are high - as much as 4% - 10% of the value of the issue; * because outside shareholders are admitted, some control may be lost over the business; * publicly quoted companies are subject to more scrutiny than private; * the risk of being taken over by purchasing of company's shares on the Stock Exchange; * as the market tends to be influenced more by the short- then long-term strategy of listed companies, a company committed to a long-term plan may find its stock market performance disappointing. The going public company is required: * minimum issued capital of ?50.000; * minimum market capitalization of ?500.000; * 25% of your equity shares available to the public; * sign a Stock Exchange listing agreement, which binds you to disclose specified information about your company in future. 2. Types of Shares There are two main classes of shares are ordinary and preference Ordinary shares (sometimes called 'equity' shares) Those are the highest risk-takers shares in the company. This implies that the holder's claims upon profit - for dividend, and assets - if the company is liquidated, are deferred to the prior rights of creditors and other security holders. However, the capital liability of ordinary shareholders is limited to the amount they have agreed to subscribe on their shares, therefore they cannot be called upon to meet any further deficiency that the company may incur. If the ordinary shares are the voting (controlling shares) but in some companies the significant proportion is held by the directors and the remainder are widely held by a large number of shareholders, so the directors may effectively control the company. Preference shares They also are the part of the equity ownership, attractive to risk-averse investors because of their fixed rate of dividend, which normally must be at a higher level than the rate of interest paid to lenders, because of the relatively greater risk of non-payment of dividend. Whilst they are part of the share capital, the holders are not normally entitled to a vote, unless the terms of issue specified overwise, and even then votes are usually only exercisable when dividends are in arrears. ............