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Question
Distinguish between the following.
Fixed Price Issues and Book Building
Solution
| Fixed Price Issue Method |
Book Building Method |
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1. Meaning: Under this method, the issue price of shares is mentioned in the prospectus and investors have to buy shares at that price only. |
Under this method, the issue price is determined by a bidding process. The investors are given a price band and are asked to bid at a price within the band. This way company arrives at a price at which it will sell its shares. |
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2. Price of Shares: The exact price of shares is known in advance and it is mentioned in the prospectus. |
The price of shares is not known in advance. Only the minimum price and maximum price at which the company is willing to sell the shares are known in advance. |
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3. Prospectus: The company has to issue a prospectus and it contains the details of the price at which shares are offered and the total number of shares offered by the company. |
Company issues a Red Herring Prospectus. It contains only the price band and the total size of the issue. |
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4. Determination of Demand: The company comes to know the public demand for its shares only after the closure of the issue. |
The company can know the public demand for its shares every day. The bids are registered in the book every day until the closure of the issue. |
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5. Payment of Application Money: Application money or the entire money has to be paid by the investor at the time of submitting his application for shares. |
Only application money has to be paid at the time of bidding. The money will be collected only after the issue price has been fixed. |
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6. When Used: It can be used for any issue i.e. Public Issues, Rights Issues, ESOS, etc. |
It is usually used in Public issues i.e. IPO and FPO. |
RELATED QUESTIONS
Under _________ method, issue price of shares is based on bidding.
___________ is offered to existing equity shareholders.
Select the correct answer from the options given below and rewrite the statement.
Bonus shares are issued free of cost to ______
State whether the following statement is true or false.
Floor price is the highest bid price under Book Building method.
Find the odd one.
Answer in one sentence.
To whom is Sweat Equity Shares offered by a company?
Answer in one sentence.
What is Public Issue?
Correct the underlined word and rewrite the following sentence:
FPO refers to offering of shares to the public for the first time.
Correct the underlined word and rewrite the following sentence.
Bonus shares are offered to existing employees of a company.
Explain the following term/concept.
Sweat Equity shares
Answer in brief.
State the provisions related to Bonus Shares.
Answer the following question.
Explain the two methods a company can use to make its public offer of shares.
Answer the following question.
Explain briefly the different types of shares offered by a company to its existing equity shareholders.
What is Employee Stock Purchase scheme?
Explain provisions that the company must fulfil.
Give one word or phrase for the following sentence:
Full form of SARS.
______ is the process of offering shares to the general public.
Sai Ltd. Company is newly incorporated public company and wants to raise capital by selling equity shares to the public. The Board of Directors are considering various options for this. Advise the Board on the following matters:
- What should the company offer – IPO or FPO?
- Can the company offer Bonus shares to raise its capital?
- Can the company enter into Underwriting Agreement?
Explain the following term/concept:
Bonus shares
