Answer Questions Essay Example | Topics and Well Written Essays - 2000 words - 1

Answer Questions - Essay Example A quoted firm can seek to grow its capital as an investment. Therefore, purchase of other organisations and seeking to produce more products, as well as enlarging the market share falls under this investment. When a listed company purchases another company, it increases its earnings through this investment. Listed private companies engage in this kind of investment because, they do not have to distribute the money back to the limited partners after a specified period of time (Cumming, 2010, p.56). A listed company that has already offered its shares in, through the stock market, can seek additional capital through a rights issue. Therefore, a listed company offers a rights issue to raise more finance, because its shares are already listed in the stock exchange. Rights issues are regarded by the stock exchange as the fairest activity to existing shareholders. Therefore, a company’s management can decide to allow shareholders to purchase additional stocks in the proportion to their current holdings. When an organisation wants money to expand its operations, it may opt to offer a rights issue. Members who are not willing to take up the rights issue can sell their right in the market so as to avoid losses resulting from dilution. It should be noted that a rights issue leads to an increase in the number of shares of a company, leading to dilution. Listed companies can also offer preference shares as a source of finance. The issue of preference shares enables a company to raise long-term finance. Preference shareholders provide finance to a listed company, while they get shares in return. A fixed dividend is to be earned by any shareholder who owns a preference share in a listed company. It is impossible for these types of stockholders to be engaged in decision making through voting. They do not participate in retained earnings, and this is advantageous to a listed company, because presence of preference shareholders does not threaten