Question

‘Pratap Furnitures Ltd.' is the market leader in moulded furniture. Now, it is planning to enter into a new product line, that is, furniture made of wood and bamboo. 

To start production it needs new machines and skilled labour along with good quality wood. For all this it needs ₹ 2 crore. ‘Pratap Furnitures Ltd.' is planning to raise funds by issue of prospectus. But its Board of Directors decided to honour the existing shareholders by offering them the shares on pro-rata basis, before going for issue through prospectus.

1. Identify and explain the type of capital market from which Pratap Furnitures Ltd.' is going to raise funds.
2. Explain the two methods of raising funds discussed in the above case.
3. What reward do the investors get when shares are issued through prospectus?

Answer 1

1. 'Pratap Furniture Lid.' want to raise money from the primary market," is the response. New securities are first issued and sold on the main market, sometimes referred to as the new issue market. Businesses use this market to issue new shares to the general public in order to raise additional funds.
2. 1. Rights Issue: This is how the business gives its current owners new shares. according to pro rata. Prior to the corporation making new shares available to the public, current shareholders have the right to buy them at a reduced price.
   2. Public Issue by Prospectus: In this method, new shares are made available to the "general public" through the publication of a prospectus. The company's operations, financials, and offering terms are all covered in detail in the prospectus. enabling prospective investors to decide whether to buy the shares after doing their research.
3. Investors receive the benefit of owning a portion of the business when shares are issued through a prospectus. As a result of their ownership, they have the ability to vote in business decisions, receive prospective dividends, and profit from any future increases in the value of the company's stock.