Offer for Sale Method

Offer for Sale Method

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The primary market serves as the initial platform for companies to raise capital through various methods, one of which is the "offer for sale" (OFS) method. OFS has become increasingly popular in recent years as it offers a straightforward approach to raising capital and allows existing shareholders to monetize their investments.

The offer for sale in the primary market allows existing shareholders to sell their holdings to the public as it involves the sale of existing shares to the public. Typically, this method is used by promoters, venture capitalists, or other shareholders looking to divest their holdings in a company. It also provides an opportunity for the public to purchase those shares.

Offer for sale and offer for subscription are two distinct methods of raising capital in the primary market but there are differences between the two. In an OFS, existing shares are sold to the public, while in an offer for subscription; new shares are issued by the company. OFS primarily serves the purpose of allowing existing shareholders to divest their holdings, while an offer for subscription is used by companies to raise additional capital. In an offer for sale, the ownership structure of the company remains unchanged, as existing shares are sold. In contrast, an offer for subscription can lead to changes in ownership. In an offer for sale, the funds raised go to the selling shareholders, whereas in an offer for subscription, the funds are received by the company issuing the shares, providing fresh capital for its operations. Offer for subscription typically involves more extensive regulatory requirements, as companies are required to provide detailed information about their financials and business operations to attract investors to subscribe to new shares.

In addition to the benefits, there are also some disadvantages of an offer for sale that includes limited participation and overhang concerns. Offer for sale may limit the participation of retail investors, as shares are often sold to institutional investors. This can reduce the opportunity for retail investors. If a significant number of shares are offered for sale, it can create an overhang in the market leading to a suppression of the share price. This overhang occurs when investors anticipate a flood of shares hitting the market and causes uncertainty, affecting the stock's value.