Issue of Shares

INTRODUCTION: - Shares and debentures are financial instruments for raising funds for the company. Under the Companies Act, 2013, these are jointly referred to as “Securities”. - Generally, shares depict ownership interest in a company with entrepreneurial risks and rewards whereas debentures depict lender’s interest in the company with limited risks and returns.

Definition of 'share' [Sec. 2(84)]. 'Share' means a share in the share capital of a company and includes stock .

Meaning of 'share' A share is the smallest unit into which the share capital of a company is divided. A share thus represents such proportion of the interest of the shareholders as the amount paid up thereon bears to the total capital payable to the company. It is a measure of the interest in the company’s assets to which a person holding a share is entitled.

 Kinds of share 

Share capital shall be of 2 kinds, namely:

1) Equity share 

 i. with voting rights; or

 ii. with differential rights as to dividend, voting or otherwise, in accordance with such rules as may be prescribed by CG.

 2) Preference share 

Share capital carrying a preferential right with respect to dividend and repayment of capital is termed as preference Share capital.

(i) Preferential right as to payment of dividend 

 (ii) Preferential right as to repayment of capital in the case of winding up of the company 

Issue of Securities By The Company

Procedure for Issue of IPO (Initial Public Offer) 

(FPO=Further Public Offer/Following Public Offer)

u BOD Taken a decision for issue of shares by IPO.

u Draft of Prospectus is prepared by the company.

u Appoint a merchant banker for the IPO.

u Draft Prospectus is given to the merchant banker for filing.

u Merchant Banker issue a compliance certificate.

u Merchant Banker first draft prospectus with ROC/SEBI

u SEBI & ROC will check draft prospectus.

u Application is made to atleast one stock exchange for listing.

u Name of Stock exchange is mentioned in draft prospectus.

u SEBI and ROC will suggest changes in Draft Prospectus.

u Company will prepare final Prospectus.

u Company will take approval from experts of IPO.

u Experts consent is mentioned in Prospectus.

u Final Prospectus is given to Directors for verification and signing

u Directors sign the prospectus and verify its contents.

u Merchant Banker verify the final prospectus and files it with SEBI & ROC

u ROC registers the prospectus and give a date to prospectus.

u Appointment of RTA , Banker, underwriters and brokers is done.

u Prospectus is printed and distributed.

u Subscription opens for public (3-10 days)

u Approval of stock exchange is received within 70 days or application money is to be refunded.

u Board of Directors will prepare a scheme for allotment and file it with stock exchange.

u Allotment is made to applicants within 120 days of dating.

u Refund is to be made within 10 days to unsuccessful applicants.

u Allotment letter issued to successful applicants.

u Share certificates are issued within three months.

u ESCROW account is closed and money is given to company.

u Within 30 days Return of allotment is submitted to ROC.

u Board Members issue compliance certificate

u Company will start process of listing of shares at stock exchange.

u Company will update the register of members.

 

What is Private Placement

u Private Placement' means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter (Form PAS.4) and which satisfies the specified conditions.

What is Right issue?

u A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights.

u For example, 1:4 rights issue means an existing investor can buy one extra share for every four shares already held by him/her. Usually the price at which the new shares are issued by way of rights issue is less than the prevailing market price of the stock, i.e. the shares are offered at a discount.

What is Bonus Issue?

u Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.