Quotation is consent by the stock exchange for companies’ securities to be dealt with in the securities market i.e. to be bought and sold in the securities market.
Advantages of Quotations
- A quoted company is able to raise finances quickly and easily.
- A quoted company is considered to be financially stable.
- A quoted company can easily obtain a loan.
- A quoted company can compare itself with other companies.
- There is prestige associated with quoted companies.(the public has confidence in investing in this company, can be given loans by banks )
- Quoted companies are forced to operate within certain guidelines drafted by the C.M.A.
Requirements of quotation
- A company must be a public limited company
- It must be registered with the registrar of companies and must submit a certification of registration.
- The company must provide details of the current directors, company lawyers, company secretary, company auditors, financial year end and subsidiaries (branches) of the company.
- Such a company must inform the stock exchange the current distribution of the shares.
- Such a company must be willing to offer the public a minimum number of shares.
- Such a company must pay a clearing fee.
Such a company must issue a statement of dividends and bonds issued in the previous 5 years.
Disadvantages of quotation.
Loss of secrecy- means the company losses its secrecy through the publication of the company’s shares. The secrecy is also lost by inspection of the books of accounts by the shareholders or by the public.
- In case the company’s profits decline this will be revealed to the public and will lower the share prices of such a company.
- There is loss of control to incoming shareholders. (the directors guide the day to day acts)
- It is expensive because of the fee payable to the stock market.
- The formalities of quotation are tedious and tiresome.
- Immediately after quotation the prices are likely to be low. (due to over or under subscription of shares).
- A quoted company can easily be taken over by people buying shares in the stock exchange.