BKF 3 - Equity Financing

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Questions and Answers

What is one fundamental difference between equity financing and debt financing?

Debt financing involves selling ownership stakes.

Equity financing allows sharing of ownership. (correct)

Debt financing leads to dilution of shareholder profits.

Equity financing requires repayment with interest.

What is a consideration that might make a company hesitant to raise more debt?

All shareholders support a debt strategy.

The legal costs of raising equity are too high.

The company is already highly leveraged. (correct)

The company has very low existing debt.

Which factor does NOT influence a company's decision to opt for equity financing?

Availability and cost of debt finance.

The number of shareholders willing to invest. (correct)

Existing loan agreements and limitations.

The current market rating of its shares.

How does debt financing typically affect ownership in a company?

It has no effect on ownership stakes. Signup and view all the answers

Why might a company choose equity financing over debt financing?

To avoid the obligation of repayment and interest. Signup and view all the answers

What may limit a company's ability to pursue additional borrowing?

Restrictions imposed by existing loan agreements. Signup and view all the answers

What is a potential consequence of issuing new shares to current shareholders?

Dilution of ownership stakes for existing shareholders. Signup and view all the answers

Which of the following is not a source of funding for private companies?

Public share offerings Signup and view all the answers

What is the maximum amount a small private company can raise in a 12-month period without needing to issue a prospectus?

$5 million Signup and view all the answers

What is the maximum number of shareholders allowed in a private limited company?

50 shareholders Signup and view all the answers

Which type of investors can be targeted for offers without an advertisement when reaching out to a maximum of 50 persons?

Any investors Signup and view all the answers

Which consideration needs to be acknowledged when a private limited company seeks additional fundraising?

Existing shareholders may require conversion to a public company. Signup and view all the answers

What does the Singapore Code on Takeovers and Mergers apply to?

Public companies with net tangible assets of $5 million or more Signup and view all the answers

Which of the following is a requirement for small private companies offering shares to be exempt from issuing a prospectus?

The offer must be made to no more than 50 persons Signup and view all the answers

What type of fundraising arrangement could smaller private companies enter into with one or several investors?

Subscription agreements Signup and view all the answers

What is one potential outcome if a private limited company exceeds the maximum number of shareholders?

It must convert to a public limited company. Signup and view all the answers

What is the purpose of the prospectus in an IPO?

To provide a marketing tool for potential investors. Signup and view all the answers

Which board typically requires companies to have a minimum one-year track record?

The main board. Signup and view all the answers

What must companies on the catalyst board secure for approval?

Approval from certain sponsors or issue managers. Signup and view all the answers

What may happen to those responsible for false statements in a prospectus?

They can be held for both civil and criminal liability. Signup and view all the answers

What is a critical component of drafting the prospectus?

Performing due diligence and verification. Signup and view all the answers

What type of criteria is required by the main board for listing?

Quantitative entry criteria. Signup and view all the answers

What is included in the prospectus to help investors make informed decisions?

The issuer's assets, liabilities, and financial position. Signup and view all the answers

What must occur if the issuer needs to restructure before going public?

A pre-IPO restructuring process is implemented. Signup and view all the answers

What is the initial step in preparing for an IPO after due diligence?

Submitting an application to the stock exchange. Signup and view all the answers

Which party plays a major role in preparing the prospectus along with the issuer?

Legal advisors, auditors, and experts. Signup and view all the answers

What is the primary role of the MAS in the IPO process?

To approve the submission of the prospectus Signup and view all the answers

Which of the following best describes the purpose of pre-IPO placements?

To enhance the issuer's credibility and attract more investors Signup and view all the answers

What is a critical step at the conclusion of the IPO process?

Pricing the IPO and registering the final prospectus Signup and view all the answers

How long does the entire IPO process typically take, according to the information provided?

Six months to a year, based on issue resolution Signup and view all the answers

What is the main goal of conducting road shows during an IPO?

To attract institutional and accredited investors Signup and view all the answers

Which of the following is NOT one of the methods mentioned for IPO marketing?

Public offering announcements Signup and view all the answers

What must issuers disclose to avoid the establishment of a false market in their securities?

Material information that may affect price Signup and view all the answers

What do cornerstone investors contribute to an IPO?

Assurance of demand and increased deal certainty Signup and view all the answers

What happens to a company once it is officially listed according to the provided content?

It must adhere to ongoing compliance obligations Signup and view all the answers

What is the significance of closing the offer after the IPO?

Official admission to SGX and share listing Signup and view all the answers

What is a requirement for transactions involving interested persons, such as directors or controlling shareholders?

Shareholders must approve transactions exceeding specified limits. Signup and view all the answers

Which of the following is NOT a factor that must be disclosed in a listed issuer's annual report related to corporate governance?

Average salary of the CEO. Signup and view all the answers

Under Singapore law, which of the following is a requirement for a primary listing?

A profitability test to demonstrate financial stability. Signup and view all the answers

What is the primary concern regarding interested person transactions?

Potential influence for personal benefit by related parties. Signup and view all the answers

What financial information must be included in annual audited financial statements for a company?

Existing debts and the implications for borrowing. Signup and view all the answers

Study Notes

Equity Financing Overview

Equity financing involves companies issuing shares to raise funds
Companies may issue shares to individuals or corporations initially funded by their own money
This provides ownership in the company to investors
Debt financing is an alternative where companies borrow money from banks or other credit/financial institutions

Equity Financing for Private Companies

Friends and family, angel investors, government schemes, startup incubators, and venture capitalists are funding sources
Private companies must issue a prospectus unless exemptions apply
Small, early-stage companies may use small offers, smaller groups of investors or certified investors

Public Offerings of Shares

Public companies can list on a stock exchange (example, SGX)
Equity financing through public listings may require secondary offerings
Two main listing boards are the main board and catalyst board with different requirements for issuers
Companies seeking a main-board listing must demonstrate a one-year track record of profitability or market capitalization surpassing certain thresholds ($30M)

IPO Process

Pre-IPO placements are a method of involving early investors
Cornerstone investors can also provide funding
Initial Public Offerings (IPOs) are a crucial stage for converting a private company into a publicly traded entity
Companies seeking a listing must satisfy certain criteria (track records, financial health, and market capitalization) and submit documentation to regulatory bodies (SGX, MAS)
IPOs can involve several stages including due diligence, prospectus preparation, and regulatory approvals

Continuing Obligations

Issuers must disclose material information to prevent a false market for company securities
Public issuers must provide regular financial results to maintain investor confidence
Interested person transactions (IPTs) between an issuer and its related parties (directors, CEO, controlling shareholder) are governed under a higher standard
Other procedures such as completing required documentation, engaging with regulatory bodies, and undertaking financial reporting are part of the process

Exemptions

A company raising less than $5 million in 12 months
An offer made to 50 people in 12 months or less (provided advertisements are not included)
Offering shares to qualified/certified investors are some exemptions from issuing a full prospectus

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Description

This quiz covers the fundamentals of equity financing, including the process of issuing shares for capital raising and the differences between private and public offerings. Learn about funding sources for private companies and the significance of listing on stock exchanges. Test your knowledge on key concepts and terms surrounding equity financing!