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Resource Mobilization — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipResource Mobilization3 Marks
Question
From the given situations, identify and explain the method of floatation of new issues:
  1. ICICI is in need of additional capital for its new venture. It decides to raise funds by selling the issues mainly to General Insurance Corporation of India and Life-Insurance Corporation of India.
  2. Jay is holding 100 shares of a company. He has been given a privilege offer to subscribe to a new issue of the same company in proportion of his current shareholding with the company. Jay was unwilling to subscribe, so he renounced the offer in favour of Veeru who bought the shares.
  3. Gopal is working as the Regional Chairman in a well reputed Non-Banking Finance Company which is listed in Stock Exchange. As performance bonus, the company gave 25 equity shares to Gopal.
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Answer

Private Placement.
  1. This involves direct issue of securities by a company to the institutional investors and some selective individuals like Unit Trust of India, Life Insurance Corporation of India, etc.
  2. It is quicker and the cheaper method of raising capital compare to a public issue.
Right Issue.
  1. This is a method to raise additional funds by company by offering shares first to its existing shareholders. The shares are offered on pro rata basis i.e. in the proportion to shares already held by them.
  2. The existing shareholders can also renounce their right in favour of another person, in case they are not willing to buy more shares.
  3. It is comparatively a cheaper method as there is no involvement of intermediaries like brokers, underwriters, etc.
Stock option or offer to employees.
  1. These are the securities issued to the employees where in holder gets the right, but not the obligation, to purchase (or sell) securities at a specified price.

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