"A privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company".
Identify the method of flotation from this statement.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rights Issue
Option (1) Offer for Sale — Incorrect. The company first sells the securities in one lot to brokers or issuing houses at an agreed price. They then resell them to the general public, not only to existing shareholders.
Option (2) Rights Issue — Correct. A rights issue is offered only to the company’s existing shareholders. Each one gets the ‘right’ to buy new shares in proportion to the shares he already holds.
Option (3) Private Placement — Incorrect. The securities are allotted to institutional investors and a few selected individuals. It raises money quickly and cheaply, but it is not a privilege of the existing shareholders.
Option (4) e-IPOs — Incorrect. Here the company issues its shares to the public through the online system of the stock exchange.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below.
NCERT (Pre-rationalised Edition):
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