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Definition of 'Flotation'

Flotation is the process of issuing new shares of stock to the public. It is also known as an initial public offering (IPO). The term "flotation" comes from the idea that the shares are "floated" on the market, where they can be bought and sold by investors.

The process of flotation can be complex and time-consuming. It typically involves the following steps:

1. The company prepares a prospectus, which is a document that provides information about the company and the shares being offered.
2. The company hires an investment bank to help it market the shares to investors.
3. The investment bank sets a price for the shares and arranges for them to be sold on the stock exchange.
4. The company receives the proceeds from the sale of the shares.

The costs of flotation can be significant. These costs include the fees paid to the investment bank, legal fees, and printing costs. The company may also need to raise additional capital to cover these costs.

Flotation can be a risky process. There is no guarantee that the shares will be successful in the market. If the shares are not well-received by investors, the company may not be able to raise the amount of capital it needs. The company's stock price may also decline after the IPO, which could damage its reputation.

Despite the risks, flotation can be a valuable way for companies to raise capital and grow their business. By issuing new shares of stock, companies can access a wider pool of investors and raise more capital than they could through other means, such as bank loans. Flotation can also help companies to increase their visibility and brand awareness.

In addition to the costs mentioned above, there are other potential costs associated with flotation. For example, the company may lose control of its board of directors if too many shares are sold to outside investors. The company may also have to disclose more information about its operations and financial condition, which could make it more vulnerable to competitors.

Flotation is a complex and important decision for any company. Before deciding to go public, companies should carefully consider all of the costs and risks involved.

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