ACCA Financial Management (F9) Certification Practice Exam

What is the purpose of placing shares with a small number of investors?

1. To maximize public investment participation.

2. To minimize underwriting costs.

3. To efficiently arrange bulk share purchases for quick sale.

4. To facilitate regulatory compliance with public offerings.

The correct answer is: To efficiently arrange bulk share purchases for quick sale.

Placing shares with a small number of investors is often done to enable bulk share purchases, making it easier to arrange a quick sale of those shares. This method is commonly known as a private placement. It allows companies to raise capital without going through the lengthy and complex process of a public offering, which can include extensive regulatory requirements and disclosure obligations. This approach is advantageous for companies seeking immediate funding, as it can be executed more quickly than public offerings, which often require more extensive due diligence, market analysis, and investor outreach. Thus, the emphasis on efficiently arranging these bulk purchases meets the strategic need for rapid financing, especially for companies that may not need or want the broader exposure that comes with selling shares to the general public. While the other options have their merits, they do not highlight the primary benefit of the bulk purchase aspect of private placements. Public investment participation is not a goal in this scenario, and while minimizing underwriting costs and facilitating regulatory compliance may be secondary considerations, they do not capture the essence of why shares are placed with a limited number of investors. The focus is fundamentally on the efficiency of capital raising through swift transactions.