Question

What is the basic difference between Initial Public offering and Right issue?

Hint:

Remember: IPO = First-time offer to public; Rights Issue = Additional shares to existing shareholders. IPO brings new shareholders, Rights Issue involves current shareholders.

Answer 1

Step 1: Understanding the Concept:
Both are methods used by companies to raise capital in the Primary Market.
Step 2: Detailed Explanation:
Initial Public Offering (IPO):
- It is the first time a company sells its shares to the general public.
- It allows a company to get listed on a stock exchange.
- Any member of the public can apply for shares.
Rights Issue:
- It is an offer of shares by an already listed company.
- It is offered only to existing shareholders in proportion to their current holdings.
- It is a way for companies to raise additional capital without bringing in new outside owners initially.
Step 3: Final Answer:
The fundamental difference is that an IPO is open to everyone (the general public), whereas a Rights Issue is restricted to current shareholders of the company.