Distinguishing between public and private subscription


  • 1 Definition of Subscription
  • 2 Distinction between public and private subscription
  • 3 The importance of underwriting
  • 4 stages of subscription
  • 5 subscription benefits
  • 6 References

Definition of subscription

Subscription is the procedures applied by a person appointed to contribute to a company, such as paying the subscription subscription value, and filling out its forms, whether to establish a new institution or company , or to contribute to increasing the capital of an existing company. The subscription is divided into two types: [1]

  • Public offering: (Initial Public Offering), known by the acronym (IPO), is the presentation of establishments for their securities (stocks) in the financial market while the public is available for trading; the value of shares is estimated based on the future expectations of the growth of the enterprise, increasing income, and often it is The IPO is an opportunity for owners of companies and investors to achieve higher profits, [2] and the IPO is also known as the first offering of company shares to the public. [3]
  • Private placement: the sale of all securities ( shares ) to a group of individuals (investors), who pledge not to sell them within a specific time period, [4] and the private placement is defined as the direct sale of shares to a group of investors instead Who put it on the financial market. [5]

Distinguishing between public and private subscription

Many investors seek to use the underwriting in order to invest their money, so it is the duty of every investor to understand the difference between the types of underwriting, and the method used in the investment that is linked to the final goals of the work is what determines the nature of the underwriting that the investors will use. It is possible to distinguish between public and private subscription in accordance with the following schedule: [6]
The differences The public offering Private placement
Spreading The most common investment Special
the target audience All investors A specific group of individuals, such as the public and accredited investors
Subtraction method The IPO occurs when the company wishes to sell its shares in the financial markets, while showing its financial performance to investors Existence of financial broker assistance with the approval of a group of investors to buy shares, and keep them for a specified period of time, in exchange for offering them at a low price
Allow trading and ownership Trading and sharing of ownership is permitted, and includes business and profits There are not many securities, and it cannot be agreed to register them within the authority or committee responsible for the securities

The importance of subscription

The subscription is of great importance in the financial market, and is summarized according to the following points: [7]
  • Supporting shareholders in maintaining their ownership percentage.
  • Supporting shareholders who do not want to participate in increasing the capital by providing financial liquidity, which contributes to helping them not to sell their shares, while preserving their market value in the company, especially if the shareholders' right is sold to others who want to participate in the subscription.
  • Enhancing the ability of shareholders to participate in the subscription, specifically if they do not have the money to participate in the private placement, which contributes to converting part of their contributions to financial liquidity by selling part of the rights of their profits shown because of the subscription.

Subscription stages

The preparation of the IPO is one of the difficult tasks in the business environment , and the financial manager often works on preparing the IPO, which depends on a set of stages, the most important of which are: [8]
  • Valuation of the facility: It is the financial manager’s reliance on a team of specialists in financial analysis and planning and stock exchanges to participate in the step of evaluating the contributing companies, so these companies must set a set of procedures and rules that help the financial manager in the implementation of his tasks.
  • Willingness to prepare financial reports: The financial manager prepares a complete plan that strikes a balance between short-term goals and long-term goals, which contributes to preparing financial reports at the time required by the contributing company. Attention must also be given in preparing budgets, planning the company's own resources, and managing business , And other tasks.
  • Taxes: One of the issues that cause concern is especially for the financial manager with limited experience in adapting to special issues in taxation , especially the complex ones; therefore it is important to work with a tax advisor during this stage, because he has sufficient experience to reconcile the provisions of taxes and financial data for subscription .
  • Process improvement: is the financial manager’s treatment of the risk resulting from gaps in the oversight process , by following the risk assessment process that is a quantitative audit carried out by another accounting firm, because achieving success depends on cooperation between the financial manager, the accountant, and experienced staff In the private work environment of the company.

Subscription benefits

The subscription is distinguished as one of the important means for companies and the business sector in general, as it helps in maintaining the company continuity rather than selling it, and it also offers many benefits, including: [9]
  • Providing capital to face the risk: One of the most important benefits of underwriting, as some companies struggle to increase their capital by relying on the owners of the capital from the investors, so the subscription helps to invest the company's shares with the shareholders of the public who are willing to participate in increasing the value of the company.
  • Supporting the public image: One of the positive effects of the subscription, because it contributes to improving the public image of companies, which helps in increasing customer attraction to them, and also leads to encouraging banks to provide loans to the company.
  • Facilitating purchasing and mergers: It simplifies acquisitions and mergers between companies within the labor market .
  • Participation in monitoring companies: the subscription contribution to support the existence of a board of directors capable of managing the joint-stock company, and this board is accountable to shareholders in all procedures and decisions.
  • Participation in financial profits: it is the distribution of profits to all shareholders in the company, which contributes to achieving the correct financial participation.
  • Liquidation: One of the benefits of subscribing, as it contributes to giving shareholders or projects owners the appropriate opportunity to liquidate part of their properties, as well as providing capital owners with appropriate opportunities to liquidate their properties, whether in whole or in part.

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