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How a Company May Issue Penny Stock Shares

By Dee Boston
If you are at all curious about how a company issues penny stock shares, this article may be helpful.
Why would a company want to "go public" or offer company stock shares to the investing public? There are a number of
reasons, primary of which is to raise capital and/or increase public awareness. For example, the owner may want to
franchise or open a string of stores but doesn't have the funds to put the plan into action.
The first step, of course, is to form a team of professional advisors. The team minimally includes an attorney and
accountant who are preferably familiar with public offerings and, perhaps a trusted stockbroker. On the advice of legal
counsel, the first step is to incorporate or form a corporation.
Second, register the stock. Registration requires the owner to divulge a great deal of information including personal
experience, background, financial statements, risk factors and to complete numerous securities disclosure reports.
The reports also focus on the how much money the owner intends to raise from the public. Minimally, there are 3 ways of
offer stock to the public:
Intrastate regulation. In some states, a company can offer stock to those citizens after approval by state authorities.
Intrastate regulation restricts such offering to the state involved and sets a maximum amount that can be financed.
Limited funding forms S-18 or Regulation A-1 form are completed and filed. They must be approved by the Securities and
Exchange Commission or SEC which is the major regulatory body for stock securities. Form S18 provided for a much
higher financing limit than Regulation A and therefore required more disclosure. Most penny stocks are registered using
one of these two filings.
Full registration. This is a far more extensive and expensive form of filing. The major advantage of full registration is that
there is no limit on the amount of capital can be raised.
The third major task is to meet with a stock underwriter (marketer/distributor) to select a price. The offering price generally
reflects the stock prices of other companies that have similar operating histories. The overall stock market condition also
affects the offering price
After the specifics of the registration are completed, a registration statement is then filed with the SEC. The SEC reviews
the statement and determines whether it satisfies regulatory disclosure requirements including the 1933 Securities Act.
Following preliminary review, the underwriter receives a letter of commitment from the SEC. The letter discusses any error
or deficiencies in the registration statement and the underwriter makes all corrections. Upon SEC approval, they declare
the statement 'effective'.
Now, the company owner and the underwriter agree on how the stock is to be distributed. There are 3 ways for stock
distribution.
Firm commitment. This is the easiest method, but it is also the most risky for the underwriter. Here, the underwriter is
contractually obligated to purchase the stock offerings, which it then resells at its own risk. Firm commitments are most
common under full registration. Stocks offered under this arrangement begin trading immediately after effective sale date;
Best Efforts. Under this method, the underwriter agrees to sell the stock within in certain time period, normally within 90
days on a best efforts basis. If the stock is not sold by deadline, the investors' money is returned. If sold, the stock is
publicly traded. Most small speculative stocks are transacted here;
Straight or open offering. This is the least common issuance method. The underwriter agrees to sell the stock on a best
efforts basis within a deadline and/or minimum quota amount. If/when this type of offering is used, the process can
conceivably drag on indefinitely and so is rarely applied.
As securities are sold, the funds are collected and deposited in an escrow account. After the required number of shares
sales is completed, the deal is closed, funds are deposited into the corporate account and the underwriter begins trading
the stock.
Securities that are trading for the first time are considered to be in the 'aftermarket'. Here, security dealers 'make the

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market' by offering to purchase/sell shares at a quoted price. Following that, the investing public can trade through these
market makers/brokers.
Oh, if the stock offering and trades are successful the owner may finally be in a financial position to be franchising. Always
seek the services of competent advisors prior to investing

More resources

http://www.onemine.org/search/summary.cfm/An-Overview-of-Ore-Reserve-Certification-Requirements-for-PublicStock-Offerings?
d=CF47CCDDEA4E1C914B5715544517B6CD54B2712127205087A95CEC5C650A67B49870&fullText=s%2D18

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