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Pure prospectus Method
The method whereby a corporate enterprise mops up capital funds from the general public by means of an issue of a prospectus is called Pure Prospectus Method . It is the most popular method of making public issue of securities by corporate enterprises.
Exclusive subscription: Under this method, the new issues of a company are offered for exclusive subscription of the general public.
Issue Price: Direct officer is made by the issuing company to the general public to subscribe to the securities as a stated price.
Underwriting: Public issue through the pure prospectus method is usually underwritten. This is to safeguard the interest of the issuer in the event of an unsatisfactory response from the public.
Prospectus: A document that contains information relating to the various aspects of the issuing company, besides other details of the issue is called a Prospectus . The document is circulated to the public. The general details include the company s name and address of its registered office, the names and addresses of the company s promoters, manager, managing director, directors, company secretary, legal adviser, auditors, bankers, brokers, etc.
The pure prospectus method offers the following advantages to the issuer and the investors alike:
Benefits to investors: The pure prospectus method of marketing the securities serves as an excellent mode of disclosure of all the information pertaining to the issue. Besides, it also facilitates satisfactory compliance with the legal requirements of transparency, etc.
Benefits to issuers: The pure prospectus method is the most popular method among the larger issuers. In addition, it provides for wide diffusion of ownership of securities contributing to reduction in the concentration of economic and social power.
The raising of capital through the pure prospectus method is fraught with a number of drawbacks as specified below:
High issue costs: A major drawback of this method is that it is an expensive mode of raising funds from the capital market. Costs of various hues are incurred in mobilizing capital.
Time Consuming: The issue of securities through prospectus takes more time, as its requires the due compliance with various formalities before an issue could take place.
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