Identify the method of floatation in Primary Market wherein a company sells securities enbloc at an agreed price to a broker.
Correct Answer :
Offer for sale
Solution :
The correct option is Offer for sale.
Here is a step-by-step explanation of the different methods of floatation in the Primary Market to understand why "Offer for sale" is the correct answer:
1. Understanding "Offer for Sale":
In an "Offer for Sale," a company does not issue its shares or securities directly to the general public. Instead, it sells the entire block of securities (enbloc) to intermediaries, such as stockbrokers, investment banks, or issuing houses, at a mutually agreed-upon price. These intermediaries then sell the securities to the public at a higher price to earn a profit.
2. Why other options are incorrect:
• Offer through Prospectus: This is the most common method where a company directly invites the public to subscribe to its securities by issuing a prospectus. There is no enbloc sale to a broker first.
• Rights Issue: This is a method where existing shareholders are given the right to buy new shares in proportion to their existing holdings. It is not an open sale to brokers.
• e-IPOs: This refers to issuing securities to the public through the online system of a stock exchange, which is a digital method of public issue rather than a direct enbloc sale to an intermediary.
Therefore, the method where securities are sold enbloc to brokers at an agreed price is specifically known as an Offer for sale.
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