Quotation is consent 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 banks )
- Quoted companies are forced to operate within certain guidelines drafted 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 inspection of the books of accounts the shareholders or 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 people buying shares in the stock exchange.