Companies may frequently raise capital for various reasons say expansion, to merge or acquire other company, to meet standards and still more. Today’s business environment influences a force to bring in innovative and fresh methodologies to raise capital rather than using old methodologies. The new and innovative methods provide better efficiency in raising capital with comparatively less efforts and cost incurred. Lets see some methods that are becoming familiar among corporate now a days.
Private Placement – A methodology being very familiarly implemented by major corporate also meant as non – public offering. The securities under this methodology will be sold only to a chosen set of investors (i.e) securities will not be open for public. Private placements are experienced to be cheaper compared to public offering in case of capital sourcing. 334 companies have opted to implement private placement in the FY15 which ended up with generation of Rs.4.32 lakh crore almost 60% more than previous year.
Private investment in Public entity (PIPE) is a category of private placement where a public company’s securities are sold to private entities. In this methodology, either a private company or a mutual fund or investors will help the public company to raise capital by purchasing their stocks at a discounted rate from the current market price.
Next methodology being preferred recently is Employee Stock Ownership Plan (ESOP). This ESOP is considered to be one of the highly innovative strategies where ownership interest is distributed among the employees. Stock’s ownership will be transferred to the employees as a part of their remuneration. The stocks can then be sold after an employee leaves the job. This methodology brings in a motivation among workforce. Major shares will be distributed among the top management, which provides them authenticity to involve in decision making.
These capital raising methodologies are being monitored by Securities exchange board of India (SEBI). SEBI keeps eye on every capital raising events and companies has to gain SEBI’s permission to raise a capital beyond a particular limit. SEBI also frequently come out with regulations to ensure qualified sources of capital.