Private Placement Meaning Types MCQ CommerceAttempt now to check your rank among 41 students! 50 Questions 30 Mins
About Private Placement Meaning Types
Meaning of Private Placement
Instead of selling stock, shares, or bonds on the open market, a private placement sells them to pre-selected investors and institutions. For a company wanting to generate funds for expansion, it is an alternative to an initial public offering (IPO).
Wealthy investors, other financial institutions, banks, insurance companies, mutual funds, and pension funds are among the investors who are asked to engage in private placement programs.
One of the benefits of a private placement is that it has fewer regulatory restrictions.
Salient Features of Private Placement
- A private placement is the sale of securities to a select group of people or institutions.
- When compared to open market sales of securities, private placements are comparatively unregulated.
- Private sales are becoming more prevalent for companies since they allow them to raise funds while foregoing or delaying an IPO.
Types of Private Placement
- Preferential Allotment
- Qualified institutional placement
Preferential Allotment: It refers to the procedure of issuing certain securities at pre-determined prices and to exclusive business entities, such as mutual fund firms, promoters, or financial institutions.
In Chapter XIII of the SEBI (DIP) guidelines, the directions for such an allotment are stated. For the issuing of securities, investors may have a lock-in period that the company must follow.
Qualified Institutional Placement: Under the private placement, a company that is into trading publicly can issue shares as well as other types of securities to solely institutional investors. This is a technique of stimulating publicly traded entities to amplify funds from the domestic market. Such a kind of placement is regulated by SEBI (DIP) guidelines, Chapter XIIA.
Benefits of Private Placement
- Facilitates funding.
- Stability of the market.
- Raising tiny amounts of capital.
Following are some of the multiple choice questions on the Private Placement Meaning Types with answers that will help the students in developing their knowledge.