Issuing Stocks to the Public: 12 Steps to Raise Capital for Businesses

Each year, hundreds of businesses in Vietnam choose to issue shares to the public to expand their scale and attract investment capital. According to statistics from the Vietnamese stock market, tens of trillions of Vietnamese Dong are raised through IPOs and additional share offerings each year. This shows that issuing shares is not just a trend but also a long-term growth strategy for many companies.

So, what is public share issuance, what is the process, and what do businesses need to prepare to attract investors? When a company issues shares, they are sharing ownership of the business with shareholders in exchange for development capital. Share purchasers will have voting rights and may receive dividends if the business performs well.

This article will help you understand the nature of share issuance, how businesses raise capital through the stock market, as well as important factors to consider before deciding to proceed. If you are learning about IPOs, increasing charter capital, or business expansion strategies, this will be practical and easily applicable information.

Basic steps to issue shares

Clearly define the capital needed

Before considering an IPO or public share offering, you need to answer precisely: how much money does the business need and what will it be used for? This is the foundation of any capital increase plan.

• Detail the purposes of capital use: expanding production, investing in technology, debt repayment, supplementing working capital.

• Calculate projected cash flow for the next 12–36 months.

• Estimate the minimum and optimal capital levels to avoid over-issuance that would dilute shares.

Clearly defining capital needs helps businesses be proactive in their share issuance strategy and build investor confidence.

Check the number of shares allowed to be issued

Not every business can issue as many shares as it wants. You need to review the company's Charter or Business Registration Certificate to know:

• The total number of shares authorized for offering.

• The type of shares permitted for issuance: common shares, preferred shares.

• Regulations on increasing charter capital if additional issuance is needed.

This step is particularly important in the public share issuance preparation process because regulatory agencies will meticulously check its legality. Many businesses have to adjust their capital structure before carrying out an IPO.

Calculate a reasonable share price

Once you know the total capital to be raised and the number of shares that can be issued, you can determine the offering price. This is a crucial factor for the success of the issuance.

• Divide the total capital to be raised by the number of shares projected for issuance.

• Compare with market prices of companies in the same industry.

• Consider factors such as profit, growth rate, assets, and brand reputation.

Pricing shares too high will make them difficult to sell, while pricing them too low will lead to a loss of company value. A reasonable price helps balance the interests of existing shareholders and new investors.

Part 1: When should a business issue shares?

Step 1: Understand share issuance correctly from the start

Understand the nature of share issuance

Share issuance is one of the two most common ways for businesses to raise capital (besides bank loans). When you issue shares, you are selling a portion of the company's ownership in exchange for cash from investors.

• Businesses receive capital to expand their operations.

• Investors become shareholders and have rights commensurate with their ownership percentage.

• Rights may include voting rights and receiving dividends if the company is profitable.

This is the foundation of public share offerings or private placements.

Determine capital needed and number of shares to issue

Before issuing shares, you must clearly answer two questions:

1. How much money needs to be raised?

2. How many shares will be issued to achieve that amount?

Real-world example:

• You need $5,000 to start a business.

• You decide to issue 5 shares.

• Each share is priced at $1,000.

• If you buy all 5 of these shares, you own 100% of the company.

It's important to understand that when you "buy your own shares," you are essentially contributing capital to the company in the form of charter capital.

Understand the impact of share dilution

Many new business owners often overlook the concept of ownership dilution when issuing additional shares.

Suppose after a while, you need an additional $5,000:

• You issue an additional 5 new shares at $1,000 per share.

• Other investors buy these 5 shares.

• The total number of shares is now 10 shares.

At that point:

• You still hold 5 shares.

• But 5/10 shares represent 50% ownership.

Your percentage decreases from 100% to 50%. This is the mechanism of dilution in share issuance.

Important lessons when raising capital through shares

Before deciding to issue shares, carefully consider:

• How much ownership are you willing to share?

• Is the capital raised truly necessary at this time?

• Are there other options such as borrowing, or retaining profits?

Understanding these basic principles will help you be more proactive when carrying out public share offerings or raising capital from strategic investors, avoiding unintended loss of business control.

Step 2: Notable benefits of issuance

Reduce debt pressure and interest rates

When comparing share issuance and bank loans, the biggest difference lies in the pressure of debt repayment.

• Businesses that borrow capital must repay both principal and interest on time.

• New businesses or those with poor credit history often face high interest rates.

• Interest expenses reduce monthly profits and affect cash flow.

In contrast, issuing shares helps you raise capital without periodic interest payments. Investors share risks with the business instead of acting as creditors.

Increase flexible cash flow for growth

When using debt financing, business cash flow must prioritize paying the bank first. This can lead to financial strain for businesses if revenue fluctuates.

With public share offerings or private placements:

• Businesses receive capital in a lump sum.

• There is no fixed repayment obligation.

• There are additional resources for long-term investments such as production expansion, marketing, and technology.

This is particularly suitable for startups or businesses in a period of strong growth.

Improve financial structure and safety level

Investors and banks often look at the ratio between equity and debt to assess risk.

• If debt accounts for a high proportion, the business is assessed as having high financial risk.

• The more loans there are, the harder it is to access capital in the future.

Issuing shares helps increase equity, thereby improving the financial safety ratio. This is a significant advantage when a business wants to list, raise another round of capital, or expand its scale.

Limit the risk of total loss if the business fails

An important principle in corporate finance: when a company goes bankrupt, creditors are always paid before shareholders.

• Company assets will be used to pay bank debts first.

• Shareholders only receive the remaining portion (if any).

Therefore, the more you borrow, the higher the risk of losing assets if business is not favorable. By choosing to issue shares instead of borrowing, you are distributing risk among many shareholders instead of concentrating the burden on the business.

Step 3: Limitations to be aware of when issuing shares

Dilution of ownership rights

When you issue shares, you are selling a part of your business to others. This means your ownership percentage will decrease.

• The more shares issued, the smaller your holding percentage.

• Control of the company may no longer be absolute.

• You must agree to share voting rights with new shareholders.

In reality, many founders lose controlling power because they issue shares too quickly without a long-term strategic plan.

Sharing profits and growth

Issuing shares is not just about sharing ownership, but also sharing the "pie" of profits.

• When the company is profitable and pays dividends, profits will be distributed proportionally to shares.

• An increase in company value also benefits all shareholders, not just you.

This is not bad, but you need to consider whether that level of sharing is consistent with your long-term vision.

Reduced strategic decision-making power

Shareholders, especially large shareholders, often have a say in important decisions such as:

• Electing or changing management.

• Approving new share issuance plans.

• Deciding on mergers, acquisitions of businesses.

When your ownership percentage falls below a controlling level, you may no longer have full authority to direct the business as before.

The cost of repurchasing shares can be very high

If you later want to regain full ownership:

• You would have to buy back shares from other shareholders.

• The repurchase price could be much higher than the initial issue price, especially if the business has grown significantly.

This makes "buying back control" costly and complex.

Step 4: Borrowing capital or issuing shares?

Retain full business ownership

A major advantage of borrowing capital instead of issuing shares is that your shares are not diluted.

• You don't have to share ownership with new investors.

• The bank or lending institution does not participate in the operation of the business.

• You still have full control over strategy and development direction.

For business owners who want to maintain absolute control, debt financing is a viable option.

Easy cash flow planning

When taking out a loan:

• Loan repayments are usually fixed monthly or quarterly.

• Interest rates and repayment schedules are clearly agreed upon from the start.

• Businesses can proactively plan their long-term finances.

Unlike issuing shares to the public, where profits and dividends can be pressured by shareholder expectations, borrowing allows you to focus on operations without having to share profits.

Tax deductibility of interest expenses

A practical point that many businesses take advantage of is:

• Interest expenses are usually considered reasonable expenses.

• This helps reduce taxable income.

• The total tax payable may be lower than when using only equity.

This is a clear financial advantage if the business has stable profits.

Retain all profits after debt repayment

Once the loan is repaid:

• All profits generated from that capital belong to you.

• No long-term dividend distribution is required as when issuing shares.

Conversely, if capital is raised through equity, shareholders still have the right to profits throughout the life of the business.

Suitable for businesses with a strong foundation

Borrowing is a reasonable choice when:

• The business has a good credit history.

• Stable cash flow and ability to repay on time.

• The business model has proven effective.

In summary, between borrowing and issuing shares, neither option is absolutely better. If the business is stable and has control over cash flow, debt financing can help you grow without losing ownership. If the risk is high or a large amount of capital is needed for breakthroughs, issuing shares to the public may be a more suitable strategy.

Part 2: How to issue shares for small businesses

Step 1: Determine the amount of capital to be raised

Clarify the purpose of capital use before issuing shares

Businesses should not issue shares to the public impulsively. Capital increase must be linked to a specific need and clearly calculated.

• Expand production scale

• Purchase fixed assets

• Invest in technology, marketing

• Supplement working capital

Practical example: you are operating a delivery company and want to buy 5 new trucks, each costing 20,000 USD. The total amount needed is 100,000 USD. This is the target capital to be raised.

Calculate the total capital requirement accurately

To avoid under- or over-issuing shares, you should:

1. List all investment costs.

2. Estimate an additional 5–10% for incidental costs.

3. Determine the expected payback period.

The final figure will be an important basis for building a share issuance plan, valuing shares, and calculating ownership percentages after capital increase.

Use capital requirements to decide the number of shares and issuance price

Once you know you need 100,000 USD, you can answer two core questions in the share issuance process:

• How many shares will be issued?

• What is the price per share?

For example:

• If 1,000 shares are issued → each share needs to be sold at 100 USD.

• If 500 shares are issued → each share must cost 200 USD.

The amount of capital to be raised is the "compass" for the entire charter capital increase plan. If this step is miscalculated, the business may suffer excessive share dilution or fail to raise enough capital to implement its business plan.

Step 2: Determine the number of shares allowed to be issued

Check the limits in the company's Articles of Incorporation

Before issuing shares to the public or private placement, businesses need to review their Articles of Incorporation. This legal document specifies:

• Total number of shares authorized for offering.

• Types of shares permitted for issuance.

• The maximum limit that the company cannot exceed without amending the articles.

For example: if the business is registered to issue 100 shares, you cannot issue 150 shares without going through the procedure to amend the articles as prescribed by law.

Understand that "authorized to issue" does not mean "must issue all"

Many newly established businesses often misunderstand this point.

• The number of authorized shares is the legal ceiling.

• The business may only issue a portion and retain the rest.

• Unissued shares can be used to increase charter capital in the future.

Retaining unissued shares is a smart financial strategy, allowing the company flexibility when additional capital is needed without immediately changing its legal structure.

Decide the number of shares from establishment

When registering the establishment of a business, you must determine the initial number of shares allowed to be issued.

For example:

• The company is registered for a maximum of 100 shares.

• If 60 shares are issued, 40 shares remain unissued.

• When capital needs to be increased later, the company can use the remaining 40 shares without amending the articles.

However, if you want to exceed 100 shares, you must go through the legal adjustment procedure.

Impact on long-term capital raising strategy

Determining the number of shares allowed to be issued directly affects:

• Ability to raise capital in the future.

• Degree of share dilution for founding shareholders.

• Phased share issuance strategy.

Therefore, when building the initial capital structure, businesses should consider beyond current needs. A flexible structure will help future share issuance proceed smoothly and save legal costs.

Step 3: Share valuation upon issuance

Determine share price based on capital needs and number of shares allowed to be issued

Once you know:

• How much capital the business needs to raise

• How many shares can be issued at maximum

You can then determine the value of each share (par value or issuance price).

Practical example:
You need 100,000 USD to invest in a fleet of vehicles. If the company is allowed to issue 100 shares, you have several options to achieve this goal.

Do not set the share price too high from the start

Technically, if you contribute the entire 100,000 USD yourself, you can:

• Value 1 share = 100,000 USD

• Issue only 1 share to yourself

However, this is not a wise long-term strategy.

If you later issue the remaining 99 shares to investors, your ownership percentage will drop significantly. This poses a risk of losing control.

Divide shares to maintain ownership flexibility

A more practical approach:

• Value each share at 2,000 USD

• Issue 50 shares to yourself to raise the full 100,000 USD

• Retain 50 unissued shares

Then:

• You own 50/100 shares (50%)

• If the remaining 50 shares are issued in the future, you still retain 50% ownership

This strategy helps better control share dilution when issuing shares to the public or raising capital in subsequent rounds.

Understand the difference between par value and actual selling price

An important point in the share issuance process is that:

• Par value is only the nominal value recorded on the share.

• The actual selling price may be higher than the par value.

The difference between the selling price and the par value is called additional paid-in capital.

In addition, businesses can issue:

• Common stock

• Preferred stock

Preferred shares often require investors to pay more than par value because they receive preferential rights such as receiving dividends first or priority in asset liquidation.

Strategic thinking when valuing shares

Share valuation is not just about raising enough capital for investment, but also affects:

• Ownership percentage of founding shareholders

• Ability to raise capital in subsequent rounds

• Enterprise value in the eyes of investors

Reasonable valuation will help the business both raise sufficient capital and preserve control, optimizing the capital structure in the long term.

Step 4: Classify shares upon issuance

Understand the two basic types of shares

When issuing shares, businesses need to decide what type of shares to issue. There are basically two main groups:

• Common stock

• Preferred stock

Each type directly affects voting rights, profit-sharing rights, and the degree of business control.

Preferred shares: prioritizing financial benefits

Preferred shares are often designed to attract investors who want to secure financial benefits.

Common characteristics:

• Usually have no or limited voting rights

• Prioritized for dividend payments over common shares

• Prioritized for payment if the company is liquidated or bankrupt

Real-world example:
If a business has $100 in profit and preferred shareholders are allocated $5 per share, they will receive their full portion first. Only after fulfilling obligations to preferred shareholders do common shareholders receive the remaining portion.

In cases of low profit or limited liquidation assets, common shareholders may receive nothing if there isn't enough to pay preferred shareholders.

Common shares: control rights and long-term growth

Common shares are the most popular type when issuing shares to the public.

Key characteristics:

• Have voting rights in important decisions

• Participate in profit sharing after preferred shareholders are paid

• Benefit from the increase in business value

This type of share is suitable for investors who want to commit long-term and have a say in the company's strategy.

Choosing the right share structure for your strategy

The decision of which type of shares to issue depends on the company's goals:

• If you want to maintain control, you should limit the proportion of common shares issued to the public.

• If you want to raise capital while retaining voting control, you can issue non-voting preferred shares.

• If preparing for an IPO, the share structure needs to be transparent and comply with legal regulations.

Each business has a different capital structure and orientation. Therefore, before issuing shares, you should consult an accountant or lawyer to build an optimal share structure that effectively mobilizes capital while protecting the founders' long-term control.

Step 5: Calculate the number of shares to be issued

Determine the number of shares based on capital needs

Once you have determined:

• Total capital to be raised

• Price per share

• Number of shares authorized for issuance

You can calculate the number of shares to be issued with a simple division.

Basic formula:

Number of shares to be issued = Total capital to be raised / Price per share

Real-world example:

• Business needs $100,000

• Price per share is $2,000

Divide 100,000 by 2,000, and you will need to issue 50 shares to raise enough capital.

Ensure not to exceed the number of shares authorized for issuance

Before making the final decision, double-check:

• Are these 50 shares within the limit of authorized shares?

• After issuance, what will your ownership percentage be?

If the company is authorized to issue 100 shares and you issue 50, you still have room to raise capital in the future without amending the charter.

Proactively calculate the impact on ownership percentage

Issuing shares is not just a capital problem, but also a control problem.

For example:

• If you currently own 100 shares

• And issue 50 new shares to investors

The total number of shares will be 150. Your ownership percentage will then decrease to 100/150, or about 66.7%.

Therefore, when calculating the number of shares to be issued, always consider three factors simultaneously: capital needed, legal limits, and share dilution.

Step 6: Comply with securities law when issuing shares

Understand that share issuance is subject to strict legal control

Issuing shares to the public or private placement is not only a financial decision but also a complex legal matter.

Securities laws often specify clear rules on:

• Conditions for offering shares

• Disclosure documents

• Financial transparency obligations

• Responsibilities of the board of directors

If regulations are not complied with, the business may face penalties, suspension of the issuance, or even serious legal liability.

Always have a lawyer accompany you during the issuance process

The regulatory system for securities at central and local levels is often very detailed and changes over time. Therefore, having legal counsel is essential when:

• Preparing share issuance documents

• Drafting share terms

• Disclosing information to investors

• Registering with regulatory authorities

A lawyer not only assists with procedures but also helps you assess legal risks before making decisions.

Ensure compliance with both state and federal regulations

In many countries, share issuance activities are simultaneously regulated by:

• Central regulatory agencies

• Regulatory agencies in the locality where the business is registered

Therefore, businesses need to fully check legal requirements at both levels, especially when conducting an IPO or public offering.

Long-term thinking about transparency and reputation

Complying with securities law is not just to avoid violations, but also to:

• Build investor trust

• Enhance professional image

• Lay the groundwork for subsequent funding rounds

In a share issuance strategy, the legal factor is not the last step, but a foundational one throughout the process. Getting it right from the start will save the business a lot of costs and risks later on.

Step 7: Draft the stock subscription agreement

Prepare a complete and clear Stock Subscription Agreement

After determining the number of shares, issuance price, and share structure, the next step in the share issuance process is to draft a Stock Subscription Agreement.

This is a legal document that records all transaction details between the business and the investor.

Typically, the agreement will clearly state:

• Information of the share purchaser

• Number of shares subscribed for

• Price per share

• Total transaction value

• Date of transaction

• Payment method

• Rights and obligations of shareholders

This is an important document that helps limit disputes and protects both the business and investors when issuing shares to the public or in a private placement.

Do not arbitrarily use available templates without legal review

Although many contract templates are available online, each business has:

• Different capital structures

• Different types of shares

• Different shareholder rights clauses

Therefore, the contract needs to be reviewed by a lawyer to ensure:

• Compliance with current securities law

• No conflict with the company's Charter

• Protection of the business's control and long-term interests

This is a step where you should not cut costs, as legal errors can lead to significant consequences later.

Issue share certificates to shareholders

After signing the contract and receiving full payment, the business needs to issue share certificates to shareholders.

This certificate must clearly state:

• Shareholder's name

• Number of shares owned

• Share purchase price

• Company name

• Special rights (if any)

This is legal proof confirming share ownership.

Think about transparent governance from the start

In the process of issuing shares, standardizing records and documents is not just for legal compliance but also to:

• Increase investor trust

• Lay the foundation for subsequent funding rounds

• Facilitate auditing or listing

A clear contract and valid certificates are the legal foundation for the entire shareholder structure of the business. Getting this step right will help you avoid many risks later on.

Step 8: Complete the share issuance transaction

Execute the transaction according to the agreement

After all terms in the stock subscription agreement have been agreed upon, the final step in the share issuance process is actually quite simple from a technical standpoint.

The basic process includes:

• The business receives the full agreed-upon amount (usually via bank transfer or check).

• The business issues share certificates to the investor.

• Records the change in the shareholder register and accounting system.

Example:
If a shareholder transfers $100,000 to purchase 50 shares at $2,000/share, the company will issue a certificate confirming ownership of those 50 shares.

Shares can be issued in exchange for assets instead of cash

In some special cases, shares can be issued in exchange for assets, known as non-cash consideration.

For example:

• A machinery supplier transfers equipment worth $100,000.

• The business issues corresponding shares instead of making a cash payment.

This form is suitable when:

• The business needs specific assets more than cash.

• The partner is willing to become a shareholder.

However, asset valuation must be transparent and verified by an accountant to avoid legal and tax risks.

Differences between small businesses and large companies

For small businesses or private placements:

• The process is usually simple.

• The number of shareholders is limited.

• Procedures are mainly internal and comply with basic legal requirements.

Conversely, when conducting a public offering of shares through an IPO:

• The business must work with an investment bank.

• A detailed prospectus must be developed.

• Buyers must be found for a large number of shares.

This process is much more complex and involves a team of financial experts, lawyers, and regulatory bodies.

Completion but not the end of responsibility

After a successful share issuance, the business still needs to:

• Update shareholder records fully.

• Comply with disclosure obligations (if it is a public company).

• Manage shareholder relations transparently and professionally.

Issuing shares is not just a capital mobilization transaction, but also a transformation in the ownership structure and corporate governance of the business. Doing it correctly and completely at this stage will lay a solid foundation for long-term development.

Legal notes and share ownership ratios

Always check legal regulations before issuing shares

Whether your business is large or small, share issuance is always subject to securities law and enterprise law.

Before proceeding, ensure:

• Compliance with central regulatory body regulations.

• Compliance with local regulations where the business is registered.

• Completion of information disclosure procedures, offering registration (if applicable).

Violating regulations can lead to administrative penalties, cancellation of the issuance, or damage to the company's reputation. Therefore, legal review is a mandatory step in the process of public offering or private placement of shares.

Ownership percentage is based on issued shares, not authorized shares

A common misconception is that many people calculate ownership percentage based on the total number of authorized shares. However, the actual ownership percentage is calculated based on the number of issued shares.

For example:

• The company is authorized to issue 1,000 shares.

• But currently, only 500 shares have been issued.

If a shareholder owns 100 shares, their ownership percentage is: 100 / 500 = 20%

Not 100 / 1,000 = 10%.

This point is very important when:

• Calculating voting rights.

• Distributing profits or dividends.

• Assessing the degree of share dilution when increasing capital.

Understanding the correct way to calculate ownership percentage will help businesses manage their shareholder structure transparently and avoid disputes over rights later on.

References

1. Investopedia. (2012). Small business financing: Debt or equity? Retrieved from https://www.investopedia.com/financial-edge/1112/small-business-financing-debt-or-equity.aspx
2. FindLaw. (n.d.). Debt vs. equity financing: Advantages and disadvantages. Retrieved from https://www.findlaw.com/smallbusiness/business-finances/debt-vs-equity-advantages-and-disadvantages.html
3. Business Owner’s Idea Cafe. (n.d.). Corporate shares and stock issuance (Part 1). Retrieved from https://www.businessownersideacafe.com/business_ideas/corporate_shares_ph1.html
4. Investopedia. (n.d.). Paid-in capital. Retrieved from https://www.investopedia.com/terms/p/paidincapital.asp
5. Accounting Explained. (n.d.). Issuance of shares for non-cash items. Retrieved from https://accountingexplained.com/financial/equity/issuance-of-shares-for-non-cash-items

Translator: Rowan Hudson Le.