Capital market; method of raising fund, offer for sale, offer/subscription, right issue, private placement. - SS3 Commerce Lesson Note

The capital market refers to a financial market where long-term securities, such as stocks, bonds, and debentures, are bought and sold. It plays a crucial role in raising funds for companies and governments. Let's discuss the methods of raising funds in the capital market, including offer for sale, offer/subscription, right issue, and private placement:

 

Offer for Sale:

An offer for sale is a method used by companies to raise capital by selling their securities to the public. In this process, existing shareholders, such as promoters or major investors, sell their shares to interested investors. The company itself does not directly receive funds from the sale of shares in an offer for sale. Instead, the selling shareholders benefit from the proceeds.

 

Offer/Subscription:

An offer or subscription involves the issuance of new securities by a company to raise funds. It can be in the form of shares, bonds, or debentures. In this method, the company offers the securities to the public or specific groups of investors, who can subscribe to purchase them. The company receives the funds from the investors subscribing to the offer, and in return, the investors become shareholders or creditors of the company, depending on the type of security issued.

 

Right Issue:

A right issue is a way for a company to raise additional capital from its existing shareholders. In a right issue, the company offers new shares to its current shareholders in proportion to their existing shareholdings. The existing shareholders have the right, but not the obligation, to purchase the new shares at a predetermined price. This allows the company to raise funds from its loyal shareholders and provides them with an opportunity to maintain or increase their ownership stake in the company.

 

Private Placement:

Private placement is a method of raising funds by selling securities directly to a select group of investors, such as institutional investors, venture capitalists, or private equity firms, rather than to the general public. It is a more targeted approach, often used by companies that require substantial capital and prefer to approach specific investors. Private placements are typically conducted through negotiations and involve issuing securities that are not publicly traded.