Question

Pradeep Industries is planning to issue equity shares to raise funds worth Rs.1,000 crores for its expansion and growth. The company has 4 directors and each director is suggesting different method for the new issue. Name the market through which directors will offer. If the directors  

     [i] Offer the entire new issue to Life Insurance Company.

    [ii]Issue shares to public via issue houses and stock brokers.

     [iii] First ask existing shareholders to apply for new issue as it is a compulsory requirement under Companies Act.   ​

Answer 1

Answer:

Explanation:

1)If the directors offer the entire new issue to Life Insurance Company, they will be using primary market. This is an example of private placement of shares where instead of issuing shares directly to public, they are issued to institutions like LIC, UTI etc.

2) If the directors  issue shares to public via issue houses and stock brokers, they will be using primary market. This is an example of offer for sale .

3)If the directors offer the entire new issue to Life Insurance Company, they will be using primary market. It is an example of rights issue, where the existing shareholders are offered to subscribe for new issues in proportion to the shares being held by them.