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Question

Difficulty: MediumPublic Limited Companies: Characteristics, Stock Listing, and Securities

Apex Dynamics Plc intends to raise additional equity capital by offering its new shares first to existing members in proportion to their current shareholding before any remaining shares are made available to the public. Which method of issuing securities is the company employing?

  1. Rights IssueAnswer
  2. B
    Bonus Issue
  3. C
    Offer for Sale
  4. D
    Private Placement

Answer

Rights Issue is the method of issuing securities where existing shareholders are given the opportunity to purchase newly issued shares in proportion to their existing shareholding.
A Rights Issue is a secondary market equity offering where existing shareholders of a public limited company are granted pre-emptive rights to purchase additional newly created shares in proportion to their current ownership percentage.

Step-by-Step Solution

1
Analyze the capital-raising scenario described in the prompt.
The company is issuing new equity shares by giving priority to existing shareholders based on their current holding percentages.
Public limited companies often protect existing shareholders from share dilution through pre-emptive rights.
2
Match the scenario characteristics to the correct financial term.
Offering new shares to current members in proportion to existing holdings for subscription is known as a Rights Issue.
It allows shareholders to maintain their proportional ownership interest in the business.

Key Concept

Rights Issue and Securities Flotation Methods in Public Limited Companies
Estimated Time:1m 0s
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Topics

Public Limited Companies: Characteristics, Stock Listing, and Securities

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