(6) Insider Information About The Growth Prospects Of The Firm
It is one of the most common reasons why promoters are bringing a typical rights issue. Promoters are among the first investors that have the insider information about the company. They usually have detailed information about the various projects, growth prospects, and fundamental changes taking place in the company.
This form of insider news provides them incentives to increase their shareholding. Rights issue offers a cost-effective way to increase capital of company’s projects.
Additionally, it also leads to increase in promoter’s shareholding. When the company rebounds with time, the promoters with higher shareholding will perhaps reap the maximum benefits.
Thus, promoters will always be ready to increase stake in a promising company even during difficult time.
(7) Rescue A Firm From The Brink Of Financial Collapse
It is one of the most critical reasons why promoters are bringing a typical rights issue. Ups & downs are the major parts of any business cycle. These are tests that can check the ability of a company’s management to handle the company in most effective manner.
But, every company is not lucky enough to manage those difficult times in a most effective manner. Some companies can find it difficult even to sustain their business activities.
Some of them may be sitting just near to financial collapse. This adverse business scenario can ruin the portfolio of each & every shareholders to certain extent.
Therefore, in order to rescue a company from financial collapse, it may opt for rights issue. Promoters who understand the company more than any other investors are likely to nurture it even during its difficult times.
Rights issue provides an easy way to seek existing shareholders to infuse more capital in the company. Promoters are likely to infuse more capital than any other retail shareholders.
This significant step is likely to boost their shareholding within the company quickly.
- Personal Benefits Of Promoters From A Rights Issue: Shutterstock