Raising Capital
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Companies have two methods which they can use to raise capital: they can borrow funds from banks or other investors (debt financing), or they can offer shares in their operations (equity financing). When companies offer shares to the public, they are inviting investors to participate in the operation of the company and share in the risk--and the reward--of the company's activities. Small companies are often very close to their investors, with major stockholders often serving as key executives in the firm. Once a company issues stock, however, it loses control of that ownership. Individuals can sell the stock to each other without the company's permission, and some investors purchase shares in companies without being interested in the daily operations of the organization. Over time, stock markets have evolved to facilitate the secondary trading of shares in companies. Some of these stock markets are quite large, such as the New York Stock Exchange and the Nikkei (Tokyo) Exchange; information on these exchanges is found on the evening news. However, many regional exchanges serve smaller communities and are an important part of the international economy. This research considers one such regional exchange, the Montreal Exchange (Bourse de Montreal) in Quebec.The Montreal Exchange, the first such exchange in Canada, was incorporated in 1874, two years after the Board of Brokers and the Corn Exchange joined together. During t
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he Exchange; these independent traders cannot conduct transactions on behalf of any other individuals or groups without obtaining broker status. To be an independent trader, an individual must be at least 18 and a Canadian citizen or legal resident and pass all exams set up by the Exchange for this purpose. In addition, the individual must have a net worth of at least $25,000 and an agreement with an accredited clearing house to facilitate trades. The individual must also be registered with the Commission des valeurs mobilieres du Quebec, the agency responsible for controlling the securities industry in the province (Montreal Stock Exchange, 1997a, p. 6).
A company which wants to be listed on the Montreal Exchange must meet a series of requirements regarding financial stability, development stage, strength of management and other criteria. This is to keep the overall quality of the listed companies high and to ensure that those companies listed on the Montreal Exchange are of the type in which investors are likely to be interested.
Once an investor decides which securities to purchase, he communicates his decision to his broker, who places the order in the computer system electronically or through a floor trader. The buy ord
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Approximate Word count = 1548
Approximate Pages = 6 (250 words per page)
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