Which of the following order is followed in the issue of shares under the "Fixed Price Offer Method"? A. Issue of a prospectus B. Receipt by the company of application for share C. Selection of merchant banker D. Issue of share certificates E. Allotment of shares to the applicant Choose the correct answer from the options given below
C, A, B, E, D
Understanding Share Issue under Fixed Price Offer Method
The process of issuing shares to the public requires following a specific sequence of steps, particularly under the Fixed Price Offer Method. In this method, the price at which shares will be sold is fixed by the company beforehand and stated in the prospectus. Let's look at the typical order of activities involved in a share issue using this method.
Key Steps in Fixed Price Offer Method Share Issue
The question lists the following steps:
- A. Issue of a prospectus
- B. Receipt by the company of application for share
- C. Selection of merchant banker
- D. Issue of share certificates
- E. Allotment of shares to the applicant
Determining the Correct Sequence
Let's arrange these steps in a logical and standard order for a Fixed Price Offer Method share issue:
First, before a company can issue shares to the public, it needs expert guidance and assistance to manage the complex process. This is where a merchant banker comes in. The selection of a merchant banker is typically one of the initial steps.
- Step 1: C. Selection of merchant banker. The company appoints a merchant banker to handle the formalities and manage the public issue process.
Once the merchant banker is appointed and the issue details are finalized, the company needs to inform the public about the share issue and invite them to apply. This is done through a prospectus.
- Step 2: A. Issue of a prospectus. The company releases a prospectus detailing the offer, the company's information, and the fixed price per share. This document is the invitation to the public to subscribe to the shares.
After the prospectus is available, interested investors can apply for the shares they wish to buy. Applications are submitted to the company (often through collecting banks or online platforms).
- Step 3: B. Receipt by the company of application for share. The company receives applications from the public during the subscription period mentioned in the prospectus.
After the subscription period closes, the company processes the applications. If the issue is oversubscribed (more applications than shares offered), a basis of allotment is decided. Shares are then allocated to the successful applicants.
- Step 4: E. Allotment of shares to the applicant. The company finalizes the list of successful applicants and allocates the shares to them. This marks the point where applicants become shareholders.
Finally, after the shares have been allotted, the company issues share certificates (or sends electronic credit confirmations to demat accounts) as proof of ownership for the allotted shares.
- Step 5: D. Issue of share certificates. Share certificates are issued to the shareholders as evidence of their ownership of the shares.
Putting these steps together, the correct sequence is C, A, B, E, D.
| Order | Step | Description |
|---|---|---|
| 1 | C. Selection of merchant banker | Appointing an expert to manage the issue. |
| 2 | A. Issue of a prospectus | Informing the public and inviting applications. |
| 3 | B. Receipt of applications | Public submitting applications for shares. |
| 4 | E. Allotment of shares | Allocating shares to successful applicants. |
| 5 | D. Issue of share certificates | Providing proof of ownership (certificate/demat credit). |
Conclusion on Fixed Price Offer Method Order
Based on the standard procedure for a share issue under the Fixed Price Offer Method, the sequence of steps is logically C (Selection of merchant banker), followed by A (Issue of prospectus), then B (Receipt of applications), followed by E (Allotment of shares), and finally D (Issue of share certificates). This order ensures that necessary preliminary steps are taken before inviting the public, processing applications, and finalizing ownership.
Revision Table: Share Issue Steps
Let's quickly review the steps in order:
- Selecting a merchant banker
- Issuing the prospectus
- Receiving share applications
- Allotting the shares
- Issuing share certificates
Additional Information: Fixed Price Offer Basics
The Fixed Price Offer Method is one way companies can raise capital by issuing shares to the public. Key features include:
- The price per share is fixed and disclosed in the prospectus before the bidding starts.
- Demand is assessed based on the total number of applications received.
- Allotment is typically proportional or based on pre-defined criteria if the issue is oversubscribed.
- This method differs from the Book Building process, where the price is determined based on bids received from potential investors.
Important Questions from Shares
Which of the following distinction(s) is/are not correct between public issue and rights issue?
(A) In public issue, applications for shares are invited from the general public and in rights issue, the shares are offered to existing shareholders.
(B) In public issue there is no question of any over-subscription and in rights issue the shares may be under subscribed or over subscribed leading to prorata allotment.
(C) The price of public issue is generally less than the market price and in rights issue, the price is deliberately made less than the market price.
(D) In a public issue, the communication of the issue is through prospectus or advertisements and in a rights issue the communication is between the company and the existing members of the company.
Choose the most appropriate answer from the options given below:
Match List I with List II:
List I List II (A) Bonus shares (I) Invitation to existing shareholders to purchase additional new shares (B) Demat shares (II) Issue is made to existing members free of charge (C) Right issue (III) Share issues by a company to its employees/directors at a discount for providing know-how (D) Sweat equity share (IV) Shares in electronic form Choose the correct answer from the options given below:
Identify the correct sequence of activities involved in the process of buy back of shares.
A. Letter of offer to the shareholders.
B. Opening of bank account.
C. Approval for Extra-ordinary General Meeting.
D. Convening board meeting.
E. Declaration of Solvency.
Choose the correct answer from the options given below:
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
A Ltd. has a share capital of 5,000 equity shares of Rs. 100 each having a market value of Rs. 150 per share. The company wants to raise additional funds of Rs. 1,20,000 and offers to the existing shareholders the right to apply for a new share at Rs. 120 for every five share held. What would be the value of right?
