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TRI 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 - Secretarial Practice

Short Note

Study the following case/situation and express your opinion.

TRI 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 :

  1. What should the company offer - IPO or FPO?
  2. Can the company offer Bonus Shares to raise its capital?
  3. Can the company enter into Underwriting Agreement?
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Solution

  1. In the above case, TRI Ltd. Company is newly incorporated public company and wants to raise capital by selling equity shares to the public. Therefore, the company should offer IPO (Initial Public Offer).
  2. No. The company cannot offer Bonus Shares to raise its capital. This is because Bonus Shares are given to its existing equity shareholders and it is given out of accumulated distributable profits or reserves. Whereas, TRI is newly incorporated company, so it will not have sufficient profit to give bonus shares.
  3. Yes. The company can enter into an Underwriting Agreement with underwriters by paying them a commission. The underwriters assure the company to take up the unsold shares so that the company is able to raise its minimum subscription.
  Is there an error in this question or solution?
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APPEARS IN

Balbharati Secretarial Practice 12th Standard HSC Maharashtra State Board
Chapter 3 Issue of Shares
Exercise Q.3 | Q 2 | Page 66
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