What is Flotation Cost?

Flotation cost is the fees associated with the issuance of new securities. The exact cost incurred will depend on the amount of money raised, as well as the riskiness of the issuance. When a large amount of money is raised, the floatation cost as a percentage of the total raised is relatively small. The reverse is the case when only a small amount is raised. This is a one-time cost; once securities are issued, flotation costs are no longer incurred.

When deciding upon the amount of funding that must be raised, a business should include flotation costs, which are subtracted from the gross receipts total. This might lead them to attempt to raise additional funds to cover the flotation cost.

Examples of Flotation Costs

Flotation costs include all of the following:

Certificate printing fees. The cost to print individual securities certificates.
Legal fees. Includes the labor to create and review filing documents, as well as to review any issues raised by the SEC.
Registration fees. The fee paid to the SEC and other regulatory bodies as part of the flotation.
Stock exchange listing fees. The periodic fee charged by the applicable stock exchange; usually based on the number of securities listed.
Underwriting fees. Based on a percentage of the funds raised; can be the largest part of the flotation cost.