Which of the following distinction(s) is/are not correct between public issue and rights issue?

(A) In public issue, applications for shares are invited from the general public and in rights issue, the shares are offered to existing shareholders.

(B) In public issue there is no question of any over-subscription and in rights issue the shares may be under subscribed or over subscribed leading to prorata allotment.

(C) The price of public issue is generally less than the market price and in rights issue, the price is deliberately made less than the market price.

(D) In a public issue, the communication of the issue is through prospectus or advertisements and in a rights issue the communication is between the company and the existing members of the company.

Choose the most appropriate answer from the options given below:

Key Points

The incorrect statement is "In the public issue, there is no question of any over-subscription and in the rights issue, the shares may be undersubscribed or oversubscribed leading to pro rata allotment."

Important PointsA: In the public issue, applications for shares are invited from the general public, and in the rights issue, the shares are offered to existing shareholders.

This statement is true as 

• Public Issue: When an issue/offer of shares or convertible securities is made to new investors for becoming part of the shareholders’ family of the issuer (The entity making an issue is referred to as “Issuer”) it is called a public issue.
• Right Issue: When an issue of shares or convertible securities is made by an issuer to its existing shareholders on a particular date fixed by the issuer (i.e. record date), it is called a right's issue. The rights are offered in a particular ratio to the number of shares or convertible securities held as on the record date

B: In the public issue, there is no question of any over-subscription and in rights issues, the shares may be undersubscribed or over-subscribed leading to pro rata allotment.

This statement is false as 

• Public issue is made to the general public and there are high chances of over-subscription or under-subscription, but right shares are allotted in proportion to existing shareholdings. So, there is no scope for oversubscription.

C: The price of the public issue is generally less than the market price and in the rights issue, the price is deliberately made less than the market price.

This statement is true as 

• The price of the public issue is generally less than the market price.
• In the rights issue, the price is deliberately made less than the market price by the directors.

D: In a public issue, the communication of the issue is through a prospectus or advertisements, and in a rights issue the communication is between the company and the existing members of the company.

This statement is true:

• Public issue is made through a prospectus that contains each and every detail of the issue whereas the right issue is made through communication between the company and the existing members of the company.