Question

Problem Thinking Company Limited is one of the top suppliers of security software products and solutions in Ghana with a market share of over 30% in the retail segment. Its customers includes people of all sections of the society i.e. both households and corporate. Its unique threat detection system works to detect security threats including virus attacks in real time to protect users’ I.T assets across varied platforms and devices. The company has an established track record of growth and financial performance. At present the company operates only through its website. The company now intends to launch a range of computer accessories and plans to market it by opening its own retail outlets. So, the board of directors of the company has decided to only raise capital for the first time through an issue of shares, but at the same time they do not wish to get into the hassles of launching a public issue. .

In the context of the above case:

Required:

i. Name and explain the way through which the company can raise finance by allotting securities to selective individuals and institutions only. ​​

ii. Can the company also raise capital through a right issue? Why or why not? Give a reason to justify your answer. ​

iii. Give TWO reasons why the company does not wish to launch a public issue

Answer 1

(i)  Private Placement

Private Placement is the way through which the company can raise finance by allotting securities to selective individuals and institutions only rather than on the open market by public offering.

It is an issue of stock either to an individual person or corporate entity it is a best way for raise finance for expansion of company because it has minimal regulatory requirements and standards, less complex, less expensive not lengthy procedure as compared to public issue.

(ii) Yes the company can also raise capital through a right issue.

Issue of shares by an existing company to the existing equity shareholders is known as right issue Companies mostly issue a right offering to fulfill the requirement of extra capital.

Right issue is a good means to raise finanace because

• Control of the company is retained in the hands of the existing shareholders
• The existing shareholders do not suffer on account of dilution in the value of their holdings
• The expenses to be incurred, if shares are offerred to the general public, are avoided.
• Image of the company is bettered when right issues are made from time to time and existing shareholders remain satisfied.

(iii) The company does not wish to launch a public issue because -

• There are a lot of regulatory requirements and standards, lengthy procedure, more complex and expensive.
• There will be a dillution of control if there are public issue, because addition of new shareholders would be participate  in all the affairs of the company.

THANK YOU !