ASX - Companies
A company is a legal entity that is formed to undertake a business activity. The liability of owners or shareholders in a company may be limited, depending on the structure of the company.
All companies listed on the ASX are public companies, although not all public companies are listed on the ASX. Presently there are over 1500 companies listed, however this number varies almost daily.
When companies require funds for their operations, they primarily have two options. They can either borrow money (debt) or raise capital (issue equity). Only public companies can solicit the public for funds and most have a mix of debt and equity.
There are several reasons why a company may consider listing on the ASX (raise capital):
- For business start up
- To fund expansion
- To pay off debt
When a company firsts lists on the ASX, it conducts an Initial Public Offering (IPO). This process is also often referred to as ‘floating the company’ or a ‘float’. In return for money from investors, equity in the company is issued in the form of shares, as the equity capital of a company is divided into shares. A share is the basic unit of ownership in a company.
For example, The Smith Farming Corporation wants to expand its agricultural business overseas and is looking to raise additional capital. It is looking to list on the ASX and by doing so, raise $10 million dollars. It may decide to issue 10 million shares at $1 each, as an example.
The Smith Farming Corporation would have to issue a disclosure document available to the public in accordance with the ASX Listing Rules. This disclosure document is called a prospectus.
The prospectus is a very important document to potential investors and will detail the present financial position and recent performance of the company, the key personnel, the likely risks of such an investment and essentially what they plan to do with the new injection of capital.
There are minimum conditions that a company must meet before it is considered to be listed in the exchange. The minimum issued capital must be $1 million and there must be at least 500 shareholders. A listed company agrees to abide by the ASX Listing Rules and allows its shares to be bought and sold on the ASX.
You can read more about the ASX by visiting their official website. Please note that you can NOT trade through their website – you must trade through a licenced broker.