What is Public Issue, Right Issue and Private Placement?
The funds can be raised through various sources for implementing the projects and one of such sources is mobilizing capital by issuing securities which can be done by public issue or right issue or private placement.
It is the most common method of raising the funds from the public at large. It is defined as Issue of stock on a public market rather than being privately funded by the companies own promoter’s, which may not be enough capital for the business to start up, produce, or continue running. By issuing stock publically, this allows the public to own a part of the company, though not be a controlling factor.
A rights issue is an issue of rights to buy additional securities in a company made to the company’s existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a way to raise capital under a seasoned equity offering. Rights issues are sometimes carried out as a shelf offering.
With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the firm at a specified price within a specified time. In a public company, a rights issue is a form of public offering (different from most other types of public offering, where shares are issued to the general public).
Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. “Private placement” usually refers to non-public offering of shares in a public company (since, of course, any offering of shares in a private company is and can only be a private offering).
Private placements may typically consist of offers of common stock or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), bonds, and purchasers are often institutional investors such as banks, insurance companies or pension funds.