What is an example of a distribution method that guarantees capital for the issuing corporation?

The firm commitment method is a distribution method that guarantees capital for the issuing corporation. In this arrangement, an underwriter agrees to purchase the entire issue of securities from the issuer at a set price. This means that regardless of whether the underwriter is able to sell all the securities to the public, the corporation receives the agreed-upon amount of capital upfront.

This method provides certainty to the issuing corporation because it minimizes the risk associated with market demand fluctuations. If the underwriter cannot sell all the securities, it still must pay the issuer the full amount, thus ensuring that the corporation secures its needed funds without delay.

In contrast, other methods have inherent risks for the issuer. For instance, a public offering does not guarantee that all shares will be sold, and similarly, the best-efforts method relies on the underwriter's ability to sell the shares without any obligation to buy them outright. Private placement could offer capital but is often limited to a smaller number of investors and might not guarantee the entire amount needed as effectively as a firm commitment.