Practicing Success
Read the following case study and answer questions. Company X raised 10,00,000 through issue of shares in open market to raise funds to establish the business of selling electronic goods. Later on for procuring funds for next six months, Company X was dependent on sources like commercial paper, and commercial bill. The issue of share done in open market was oversubscribed due to good reputation of company. These sources help the company to mobilise a large amount of money for long as well as short run. The business succeeded in its operations using these funds. |
Identify which of the following is not a method of floatation of new issues in the primary market? |
Offer through prospectus Rights issue Shares issued to promoters Private placement |
Shares issued to promoters |
The correct answer is Option (3) - Shares issued to promoters Shares issued to promoters is not a method of flotation of new issues in the primary market. There are various methods of floating new issues in the primary market: 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. |