Page 3 - LN 241606010111

d. Capital formation: Raising capital later is typically easier because of the extra liquidity for the
investors.
e. Incentives: Stock options and stock incentives can be very helpful in attracting employees.
f. Less dilution: There is less dilution of ownership control compared to an IPO.
Drawbacks
While there are benefits to going public, it also means additional obligations and reporting requirements
such as:
• Increasing accountability to public shareholders
• Need to maintain dividend and profit growth trends
• Becoming more vulnerable to an unwelcome takeover
• Need to observe and adhere strictly to the rules and regulations by governing bodies
• Increasing costs in complying with higher level of reporting requirements.

2. Rights issue
i. Rights issue is a method of raising additional finance from existing shareholders by offering securities
to them on pro-rata basis i.e. giving them a right to a certain number of shares in proportion to the
shares they are holding.
ii. Normally, through a circular, rights issues are proposed to the existing shareholders and in case they
are not willing to subscribe, they can renounce the same in favor of another person.
iii. This method of issuing securities is considered to be inexpensive as it does not require any brokers,
agents, underwriters, prospectus or enlistment, etc.

3. Private placement
Private placement means the direct sale by a company of its securities to a limited number of
sophisticated investors. Entrepreneurs, herein, raise funds by selling the issues mainly to the
institutional investors like:
• Unit Trust of India
• Life Insurance Corporation of India
• General Insurance Corporation of India
• Army Group Insurance
• State Level Financial Corporations, etc.
4. Offer to employees
Stock options or offering shares to the employees has gained much popularity in many countries of the
world. This method enables employees to become shareholders and share the profits of the company
leading to:
(a) Higher efficiency
(b) Low labour turnover
(c) Better industrial locations
(d) Low floatation cost
(e) Wider/higher generation of funds.
ii) Secondary market
Capital markets aid in the mobilization of individual savings to make them readily available to those who
need them in Industry, Trade, Finance, and Government.
a. Any transaction in shares or debentures subsequent to its primary offering is called "Secondary
Transaction". Thus, the secondary capital market, which is also known as old securities market
or stock exchange, deals with buying and selling of old securities i.e. the market securities issued
earlier are sold by existing investors in this market..