Issuer

Issuer Corporations Municipalities Governments Investment Trusts Securities Bonds Stocks
A legal entity that has the power to issue and distribute securities. Issuers include corporations, municipalities, foreign and domestic governments and their agencies, and investment trusts. They are responsible for corporate reporting, paying dividends, and servicing debt.
On this page

Definition

An “Issuer” is a legal entity that has the authority to issue and distribute securities to raise funds. Issuers can take multiple forms, including corporations, municipalities, foreign and domestic governments and their agencies, and investment trusts.

Functions and Responsibilities:

  • Corporations: Responsible for reporting on corporate developments to shareholders and for paying dividends once declared.
  • Municipalities: Issue municipal bonds for funding public projects such as schools, roads, and other infrastructure.
  • Governments: Can issue government bonds or other types of securities to finance operations and special projects.
  • Investment Trusts: Issue units or shares to investors and manage a portfolio of securities.

Examples

  1. Corporations issuing stocks: Apple Inc. issuing common stock to raise capital.
  2. Municipalities issuing bonds: The City of New York issuing municipal bonds to fund public projects.
  3. Governments issuing Treasury securities: The U.S. Department of the Treasury issuing Treasury bonds.
  4. Investment Trusts issuing units: A real estate investment trust (REIT) issuing shares to pool investors’ funds into real estate investments.

Frequently Asked Questions (FAQs)

What is the role of an issuer in the stock market?

The issuer’s role includes the creation, registration, and sale of securities, as well as the obligation to report financial and corporate developments to shareholders and the payment of any declared dividends.

How do issuers benefit from issuing bonds or stocks?

Issuers benefit by raising capital without having to incur debt. For stocks, they raise funds through equity financing, while bonds allow them to borrow money directly from investors.

Are issuers responsible for paying dividends on stocks?

Yes, issuers of stocks are responsible for paying dividends to shareholders once they are declared by the company’s board of directors.

What entities can be classified as issuers?

Entities that can be classified as issuers include corporations, municipal bodies, investment trusts, and national or international government agencies.

Yes, issuers have legal obligations to report accurate and timely information to stakeholders, comply with securities regulations, and make timely payments of interest and principal for bonds.

  • Securities: Financial instruments that represent some form of financial value and can be traded.
  • Bonds: Debt instruments issued by corporations, municipalities, or governments promising to pay interest and principal to the bondholders.
  • Stocks: Equity instruments representing shares in a corporation, providing ownership claims and dividends.
  • Dividends: Payments made by a corporation to its shareholders, usually as a distribution of profits.

Online References

  1. Investopedia: Issuer
  2. Wikipedia: Securities Issuer
  3. SEC: Types of Issuers

Suggested Books for Further Study

  1. “Security Analysis” by Benjamin Graham and David L. Dodd
  2. “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
  3. “The Essentials of Risk Management” by Michel Crouhy, Dan Galai, and Robert Mark

Fundamentals of Issuer: Finance Basics Quiz

### What is an issuer? - [ ] An entity that buys securities. - [x] A legal entity that has the power to issue and distribute securities. - [ ] A regulatory body overseeing financial markets. - [ ] An individual investor in the stock market. > **Explanation:** An issuer is a legal entity that issues and distributes securities to raise funds, including corporations, governments, and municipalities. ### Which of the following is a responsibility of an issuer of stocks? - [x] Reporting on corporate developments to shareholders - [ ] Providing personal financial advice to investors - [ ] Guaranteeing high returns on investments - [ ] Facilitating day-to-day trading in the stock market > **Explanation:** Issuers of stocks are responsible for reporting corporate developments to shareholders, among other duties like paying dividends once declared. ### What type of security can a government issuer provide? - [ ] Common stocks - [ ] Corporate bonds - [x] Treasury bonds - [ ] Investment certificates > **Explanation:** Governments can issue Treasury bonds as a way to raise funds for various public purposes. ### What entity might issue a municipal bond? - [x] City government - [ ] Private bank - [ ] Foreign government - [ ] Investment firm > **Explanation:** Municipal bonds are typically issued by city or local governments to fund public projects. ### Which of the following is NOT a typical role of an issuer? - [ ] Paying declared dividends to shareholders - [ ] Making timely payments of interest and principal on bonds - [ ] Issuing reports on corporate developments - [x] Engaging directly in the trading of securities on secondary markets > **Explanation:** Issuers do not typically engage in the trading of securities on secondary markets; this is done by investors and financial intermediaries. ### What must a corporation ensure before issuing new stocks? - [ ] Approval from the majority of its investors - [ ] Permission from municipal authorities - [x] Adherence to securities regulation and registration - [ ] Authorization from bondholders > **Explanation:** Corporations must comply with securities regulations and properly register the new stocks before issuing them to the public. ### Which of the following entities is least likely to be an issuer? - [ ] Investment Trust - [x] Retail Consumer - [ ] Municipality - [ ] Corporation > **Explanation:** A retail consumer is least likely to be an issuer, as issuers are typically organizations like corporations or government bodies. ### An investment trust issuing securities is primarily involved in what kind of activities? - [ ] Providing insurance policies - [ ] Offering personal loans - [ ] Speculative trading in commodities - [x] Managing a portfolio of securities on behalf of investors > **Explanation:** Investment trusts issue securities and manage a portfolio of assets for their shareholders. ### How do issuers fund public infrastructure projects? - [ ] By selling company shares to private investors - [ ] By taking out bank loans - [x] By issuing municipal bonds - [ ] By selling off government-owned property > **Explanation:** Municipal bonds are a common method for funding public infrastructure projects. ### Why is timely reporting to shareholders critical for issuers of stocks? - [ ] It prevents market crashes. - [x] It ensures transparency and builds investor confidence. - [ ] It enhances stock prices directly. - [ ] It guarantees high dividends. > **Explanation:** Timely and accurate reporting to shareholders ensures transparency and builds investor confidence in the issuer.

Thank you for learning about issuers and testing your knowledge with our informative quiz. Keep pushing forward in your financial education journey!

Wednesday, August 7, 2024
Itemized Deductions
Issued Share Capital
Financial Assets January 1, 1
Par Value January 1, 1
Securities January 1, 1
Systemic Risk January 1, 1
Above Par January 1, 1
At Par January 1, 1
Auction Exchanges January 1, 1
Basic Financial Instruments January 1, 1
Below Par January 1, 1
Call Price January 1, 1

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.