Issue of Shares — Secretarial Practice STD 12 Commerce / Arts — Question
Maharashtra BoardEnglish MediumSTD 12 Commerce / ArtsSecretarial PracticeIssue of Shares4 Marks
Question
What is Book Building Method?
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Answer
The method of offering shares by providing a price range is called the book building method.
In the book, building method shares will be sold by the bidding process.
The company issues a Red Herring Prospectus which contains a price range or price band and as the investor to bid on it.
In this method, the company doesn’t fix up a particular price for the share but gives a price range e.g., ₹ 80 to ₹ 100.
When bidding for the shares, investors have to decide at which price they would like to bid for the shares e.g. ₹ 80, ₹ 90, ₹ 100.
The lower price band (₹ 80) is known as the floor price and the highest price band (₹ 100) is known as the cap price. The final price at which shares are offered to investors is called the cut-off price.
Board on the demand and supply of the shares, decides the final price is to be fixed.
Investors can bid on any number of shares that they are willing to buy at a given price band. Such Bidding is kept open for 5 days.
The bids with application money are to be submitted to the Lead Merchant Bankers called ‘Book Runners’ who enter the bids in a book.
After bidding, the company fixes a cut-off price at which shares on offer can be sold.
The company issues a prospectus that contains the final price.
Book Building method is used for public issues i.e., IPO and FPO.
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