Question

“Yuvaan Ltd.”, a reputed industrial machines manufacturer, needs twenty crores as additional capital to expand the business. Mr. Karan Rastogi, the Chief Executive Officer (CEO) of the company wants to raise funds through equity. The Finance Manager, Mr. Lokesh Nayyar, suggested that the shares may be sold to investing public through intermediaries, as the same will be less expensive. Name the method through which the company decided to raise additional capital.

• A. Offer for Sale
• B. Private Placement
• C. Initial Public Offer
• D. Rights Issue

Hint:

Shares offered to the public via intermediaries (issuing houses/brokers) = Offer for Sale.
Shares offered directly to select institutional investors = Private Placement.

Answer 1

The Correct Option is A

Concept:
The primary market facilitates the initial issuance and distribution of new corporate securities.
Companies can issue equity securities using several methods, including public issues via prospectus, offer for sale, private placement, rights issues, and electronic initial public offers (e-IPOs).

Step 1: Examining Primary Market Floatation Methods:
$\bullet$ Offer through Prospectus: The issuing company invites subscriptions directly from the general public by circulating an informative prospectus.
$\bullet$ Offer for Sale: The company sells an entire block of newly issued securities to financial intermediaries (such as issuing houses or licensed stockbrokers) at an agreed price. These intermediaries then resell the securities to the investing public, reducing floatation costs and procedural burdens for the issuer.
$\bullet$ Private Placement: The direct allotment of shares by a company to institutional investors and selected clients, without offering them to the broader public.
$\bullet$ Rights Issue: Offering newly issued shares to existing shareholders on a pro-rata basis.

Step 2: Connecting the Case to the Floatation Method:
The Finance Manager suggested that the company sell its shares to the public through intermediaries to minimize costs.
This matches the definition of an Offer for Sale.

Step 3: Verification of the Match:
Selling shares to intermediaries, who then resell them to the investing public, defines an Offer for Sale.

Step 4: Final Answer:
Hence, the correct option is (A).