"A company can raise funds from the primary market through different methods, different types of issues and by means of offer document and red herring prospectus". Enumerate.
CS Executive · Capital Markets & Securities Laws · PYQS · June 2018
"A company can raise funds from the primary market through different methods, different types of issues and by means of offer document and red herring prospectus". Enumerate.
Answer & Explanation:
A company can raise funds from the primary market through different methods: Public issue: When an issue/offer of securities is made to new investors for becoming part of shareholders' family of the issuer it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO). Right issue (RI): When an issue of securities is made by an issuer to its shareholders existing as on a particular date fixed by the issuer (i.e. record date), it is called a rights issue. Bonus issue: When an issuer makes an issue of securities to its existing shareholders as on a record date, without any consideration from them, it is called a bonus issue. Private placement: When an issuer makes an issue of securities to a select group of persons not exceeding 49, and which is neither a rights issue nor a public issue, it is called a private placement. Private placement of shares or convertible securities by listed issuer can be of various types: Preferential Allotment: When a listed issuer issues shares or convertible securities, to a select group of persons in terms of provisions of Chapter VII of SEBI (ICDR) Regulations in addition to the requirements specified in the Companies Act, 2013, it is called a preferential allotment. Qualified Institutions Placement (QIP): When a listed issuer issues equity shares or securities convertible into equity shares to Qualified Institutional Buyers (QIBs) only in terms of provisions of Chapter VIII of SEBI (ICDR) Regulations, it is called a QIP. Institutional Placement Programme (IPP): When a listed issuer makes a further public offer of equity shares, or offer for sale of shares by promoter/ promoter group of listed issuer in which, the offer allocation and allotment of such shares is made only to QIBs in terms of chapter VIIIA of SEBI (ICDR) Regulations, 2009 for the purpose of achieving minimum public shareholding it is called an IPP. Offer Document "Offer document" means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a right issue, which is filed with Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision. Red Herring Prospectus (RHP) "Red Herring Prospectus" is a prospectus, which does not have details of either price or number of shares being offered, or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. An RHP for an Further Public Offer (FPO) can be filed with the ROC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act, 2013.
Topics: Primary Market
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