Introduction
Additional capital for a company is often required when the company needs to implement a potentially successful project, extend the production or range of services. The means, that may be resorted to are various. This paper aims to analyze at least three measures, which may be resorted to gaining additional financial resources.
Create and Issue More Shares of Common Stock
On the one hand, it may be regarded as the potentially correct and optimal decision, as the additional investments may be attracted by increasing the size of the common stock. These finances may be used for achieving the set goals. Nevertheless, this method may have more negative consequences than positive opportunities. The size of the common stock will be difficult to decrease after the shares are issued, especially if the project appears to be unsuccessful, or improperly managed and implemented, which will cause failure. Consequently, the new investors will sell the actions, which would cause the depreciation of the stock, and distract all the other investors. Thus, this measure may be reported only if the management of the company is sure for 100% in the success of the implementation of the project.
Moreover, the management should consider the possibility of the increased influence from the side of stockholders, and bear in mind that such influence may contradict the original interests of the company.
Create and Issue Preferred Stock
In comparison with the previously regarded decision, the creation of the Preferred Stock will be more preferred, as it presupposes the restricted amount of the investors, who will participate in this stock; moreover, they will not have the voting opportunity. In light of this fact, there will be a strong necessity to control the financial flow in this stock for better control of the financial resources. As Alderman (2006, p. 298) emphasizes:
The core right is that of preference in the payment of dividends and upon liquidation of the company. Before a dividend can be declared on the common shares, any dividend obligation to the preferred shares must be satisfied. The dividend rights are often cumulative, such that if the dividend is not paid it accumulates from year to year. However, the directors must declare a dividend before the preferred shareholder has any right to it. In the case of non-cumulative, the dividend right for the year is extinguished if it is not declared for that year.
Consequently, the decision is rather potential, nevertheless, it would require more accurate and careful disposal of the gained resources, as the investors will not bear careless treatment of their finances, and may leave the stock.
Create a 10 Year Bond
Originally, it is the measure that presupposes the minimal obligation level, if otherwise will not be stated in the agreement, nevertheless, even in this case the obligations will be before a single person or group with a single interest, but not a range of stakeholders, who have never heard of each other, nevertheless, they have the right of vote. Consequently, it should be emphasized that the bond is more preferable in the terms of the obligations and influence from the outside, nevertheless, it will take the largest period for terminating any financial obligations.
Reference List
Alderman, K. C. (2006). The Joint Financial Management Improvement Program Strikes Gold. The Public Manager, 29(2), 5.
Khan, A. & Hildreth, W. B. (Eds.). (2004). Financial Management Theory in the Public Sector. Westport, CT: Praeger.