Question

What is the primary advantage of a rights issue compared to a Follow-on Public Offer (FP

Q: Answer-What is the primary advantage of a rights issue compared to a Follow-on Public Offer (FPO) for exist...

In a rights issue, existing shareholders are offered new shares in proportion to their current holdings at a discounted price. If they exercise these rights, their percentage stake in the company remains unchanged no dilution. In an FPO, new shares are offered to the general public existing and new investors. Existing shareholders who do not purchase additional shares in an FPO see their percentage stake diluted as new shareholders enter. Rights issues are also generally less expensive to administer than FPOs and tend to be underwritten by the companys existing shareholder base. They are governed by SEBI regulations and require prior approval.

O for existing shareholders?

A A rights issue raises more total capital than an FPO because it is offered only to existing shareholders

B A rights issue protects existing shareholders from ownership dilution — those who exercise their rights maintain their proportional stake, unlike an FPO where new investors dilute existing holdings

C A rights issue is mandatory under company law for all capital raises after the IPO

D A rights issue avoids all SEBI regulations because it is a private transaction

Practice Next