Which of the following is the most popular method of raising funds by public companies in the primary market?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Offer through prospectus
Option (1) Rights issue — Incorrect. A rights issue is open only to existing shareholders, who may buy new shares in proportion to their holding.
Option (2) Private placement — Incorrect. Securities go to institutional investors and some selected individuals. It is quicker, but it does not reach the general public.
Option (3) Offer for sale — Incorrect. The company sells the issue en bloc to brokers, who resell it to the investing public.
Option (4) Offer through prospectus — Correct. Offer through prospectus is the most popular method of public companies. The company invites subscription from the public by issuing a prospectus.
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.” |