State any four methods of floatation of new issues in the primary market.

There are various methods of floating new issues in the primary market:

(i) Offer through Prospectus: 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 the newspapers and in the magazines. The issues may be underwritten and also are required to be listed on at least one recognised 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.

(ii) Offer for Sale: Under this method, securities are not issued directly to the public but are offered for sale through the intermediaries like issuing houses or stock brokers. In this case, a company sells securities in bulk at an agreed price to brokers who, in turn, resell them to the investing public.

(iii) 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. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. Some companies, therefore, cannot afford a public issue and choose to use private placement.

(iv) 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.

Leave a Comment

Your email address will not be published.