(1) Public Issue by Prospectus.
This is the most
popular method of raising funds. The company issues a prospectus
inviting applications direct from the public or through some
intermediaries such as brokers, investment house and underwriters
etc. for tasking up the new shares or debentures. Legally, a public
limited company cannot raise share capital from the public without
issuing prospectus. Sometimes, company imposes a restriction of the
minimum number of shares to be subscribed for, in order to save the
cost of issue.
Evaluation. This is the cheapest
way of disposing of securities and has an approach to a wider section
of public. But at the same time, it bears the risk of being
unsuccessful. There is another danger in case of a new company that
it may not get even the minimum subscription.
Offer for Sale.
This is another method usually adopted
in the case of large issue. Under this method, the company does not
issue prospectus but it sales or agrees to sell the securities to the
issue houses or to the financial institutions, at fixed price. Such
issue houses or financial institutions in turn issue a statement like
prospectus called 'offer for sale' as an advertisement the
newspapers for inviting applications from the public at a price
generally higher than the purchase price. The difference of
purchases price and issue price is their remuneration for managing
Evaluation. This method besides having
all advantages of the issue of Prospectus methods ha one more
advantage. It relieves the company from the administrative work and
the cost of the new issue and at the same time, it ensures that the
whole issue is sold even at a time when conditions in capital market
are unfavorable. But this method has certain disadvantages too.
Under this method, the issue houses generally issue the shares at a
price higher than the purchase price and the difference goes to be
issue houses and not to the company.
Under this method, the securities are sold to
the issue house or broker or financial institutions privately and not
by issuing prospectus in order to place them with their clients and
associates. Alternatively, they act as an agent for selling the
securities to their clients privately. It is called private placing.
The method is quite cheap because cost of issue is
negligible but the shares under this method are available only to a
selected group of investors.
(4) Right Issue
issue are generally offered by the company for cash to the existing
equity shareholders only. There is a statutory provision under
Companies Act to offer new issue by an existing company first to the
existing shareholders in the ratio of their holdings, and if existing
shareholders refuse to subscribe for their obligations, only then
such shares can be issued to the public. It is also known as
(5) Bonus Issue
a company has lack of funds to pay off dividends, but possesses
sufficient reserves and accumulated balance of profits, it generally
capitalizes such profits and reserves by issuing new shares to the
existing shareholders in addition to the cash dividend. There are
certain restrictions, imposed by the Companies Act and the guidelines
for the issue of bonus shares issue by the Finance Ministry which are
to be followed by a company for such issue.
Subscription by Inside Coteries
Under this method, a
certain percentage of new issue is kept in reserve for subscription
by inside coteries such as workers, directors etc.