Consider the following statements about the methods of floating new issues in the primary market:
(A) Under offer for sale, securities are offered for sale through intermediaries like issuing houses or stock brokers.
(B) Private placement is the allotment of securities by a company to existing shareholders and some selected individuals.
(C) Under a rights issue, new shares are offered in proportion to the number of shares the shareholders already possess.
(D) Offer through prospectus is the most popular method of raising funds by private companies in the primary market.
(E) Under an e-IPO, the issuer company appoints a registrar to the issue having electronic connectivity with the exchange.
How many of the above statements are correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Three
(A) Under offer for sale, securities are offered for sale through intermediaries like issuing houses or stock brokers. — Correct. The company does not issue securities directly to the public. It sells them through intermediaries, who resell them.
(B) Private placement is the allotment of securities by a company to existing shareholders and some selected individuals. — Incorrect. Private placement is allotment to institutional investors and some selected individuals. An offer of new shares to existing shareholders is a rights issue.
(C) Under a rights issue, new shares are offered in proportion to the number of shares the shareholders already possess. — Correct. A rights issue is a privilege of existing shareholders, so the offer follows their present holding.
(D) Offer through prospectus is the most popular method of raising funds by private companies in the primary market. — Incorrect. It is the most popular method of public companies. A prospectus invites subscription from the public at large.
(E) Under an e-IPO, the issuer company appoints a registrar to the issue having electronic connectivity with the exchange. — Correct. The issue is handled on-line, so the registrar to the issue must be electronically connected with the exchange.
NCERT (Pre-rationalised Edition): “1. Offer through Prospectus: Offer through prospectus is the most popular method of raising funds by public companies in the primary market. This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines. The issues may be underwritten and also are required to be listed on at least one stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI disclosure and investor protection guidelines.” “2. Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case, a company sells securities enbloc at an agreed price to brokers who, in turn, resell them to the investing public.” “3. Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. …” “4. Rights Issue: This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.” “4. Rights Issue 5. e-IPOs: A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the”
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