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Question
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?
Solution
- Sai Company Ltd. is a newly incorporated company and is issuing shares to the public for the first time. Hence, the company should offer Initial Public Offer (IPO).
- Bonus shares are fully paid shares issued free of cost to the existing equity shareholders in proportion to their shareholdings. So, the company cannot raise capital by offering bonus shares.
- The Company can enter into an agreement with underwriters by paying them a commission. The underwriters assure the company to take up the unsold shares (securities) so that the company is able to raise its minimum subscription.
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