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CS Executive · Capital Market and Securities Laws · Basics of Capital Market

Promoters of Anant Foods Ltd, a listed company, sell part of their existing shareholding to the public through the stock exchange's designated offer mechanism. Which statement about this transaction is correct?

In an offer for sale, existing shareholders such as promoters sell shares they already hold, so the sale proceeds go to them and not to the company. No new shares are created, so the company's share capital stays unchanged.

  1. AThe company receives the sale proceeds and its share capital increases
  2. BIt is an offer for sale, and the proceeds go to the selling shareholders, not the companyCorrect
  3. CIt is a bonus issue, since no new money is raised by the company
  4. DIt is a private placement, because promoters are the issuers

Explanation

In an offer for sale, existing holders sell shares they already own, so no new shares are created. The proceeds go to the sellers, and the company's share capital does not change. The option claiming the company receives the proceeds confuses it with a fresh issue.

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