Companies limited by shares have to issue shares to raise
the necessary capital for their operations. Issue of shares may be made in 3
ways. (i) By private placement of shares; (ii) By allotting entire shares to an
issue-house, which in turn, offers the shares for sale to the public; and (iii)
By inviting the public to subscribe for shares in the company through a prospectus.
Private placement of
shares. A private company limited by shares is prohibited by the Act and
the Articles from inviting the public for subscription of shares or debentures.
It also need not file statement in lieu of prospectus. Its shares are issued
privately to a small number of persons known to the promoters or related to
them by family connections.
A public company can also raise its capital by placing the
shares privately and without inviting the public for subscription of its shares
or debentures. In this kind of arrangement, an underwriter or broker finds
persons, normally his clients who wish to buy the shares. He acts merely as an
agent and his function is simply to procure buyer for the shares, i.e., to
place them. Since no public offer is made for shares, there is no need to issue
any prospectus. However, under s.70,
such a company is required to file with the Registrar a statement in lieu of
prospectus at least 3 days before making allotment of any shares or debentures.
As per guideline issued by SEBI in June, 1992, private placement of shares should not be made by subscription of shares from unrelated investors through any kind of market intermediaries. This means promoters share should not be contributed by subscription of those shares by unrelated investors through brokers, merchant bankers, etc. However, subscription of such shares by friends, relatives and associates is allowed.
By an offer for sale. Under this arrangement, the company allots or agrees to allot shares or debentures at a price to a financial institution or an Issue-house for sale to the public. The Issue-house publishes a document called an offer for sale, with an application form attached, offering to the public shares or debentures for sale at a price higher than what is paid by it or at par. This document is deemed to be a prospectus [s.64(1)]. On receipt of applications from the public, the Issue-house renounces the allotment of the number of shares mentioned in the application in favour of the applicant purchaser who becomes a direct allottee of the shares.
By inviting public through prospectus. This is the most common method by which a company seeks to raise capital from the public. The company invites offers from members of the public to subscribe for the shares or debentures through prospectus. An investor is expected to study the prospectus and if convinced about the prospects of the company, apply for shares.
Issue of shares to existing shareholders. The capital is also raised by issue of rights shares to the existing shareholders (s.81). In this case shares are allotted to the existing equity shareholders in proportion to their original shareholding, e.g., one share against every two shares held by a member.
Public issue of shares. Public issue of shares means the selling or marketing of shares for subscription by the public by issue of prospectus. For raising capital from the public by the issue of shares or debentures, a public company has to comply with the provisions of the Companies Act, the Securities Contracts (Regulations) Act including the Rules made there under and the Guidelines and instructions issued by the concerned Government authorities, the Stock Exchange and SEBI, etc. Management of public issue involves coordination of activities and cooperation of a number of agencies such as managers to the issue, underwrites, brokers, registrars to the issue, solicitors/legal advisors, printers, publicity and advertising agents, financial institutions, auditors and other Government/Statutory agencies such as registrar of Companies, Reserve Bank of India, stock exchange, SEBI, etc.
As per guideline issued by SEBI in June, 1992, private placement of shares should not be made by subscription of shares from unrelated investors through any kind of market intermediaries. This means promoters share should not be contributed by subscription of those shares by unrelated investors through brokers, merchant bankers, etc. However, subscription of such shares by friends, relatives and associates is allowed.
By an offer for sale. Under this arrangement, the company allots or agrees to allot shares or debentures at a price to a financial institution or an Issue-house for sale to the public. The Issue-house publishes a document called an offer for sale, with an application form attached, offering to the public shares or debentures for sale at a price higher than what is paid by it or at par. This document is deemed to be a prospectus [s.64(1)]. On receipt of applications from the public, the Issue-house renounces the allotment of the number of shares mentioned in the application in favour of the applicant purchaser who becomes a direct allottee of the shares.
By inviting public through prospectus. This is the most common method by which a company seeks to raise capital from the public. The company invites offers from members of the public to subscribe for the shares or debentures through prospectus. An investor is expected to study the prospectus and if convinced about the prospects of the company, apply for shares.
Issue of shares to existing shareholders. The capital is also raised by issue of rights shares to the existing shareholders (s.81). In this case shares are allotted to the existing equity shareholders in proportion to their original shareholding, e.g., one share against every two shares held by a member.
Public issue of shares. Public issue of shares means the selling or marketing of shares for subscription by the public by issue of prospectus. For raising capital from the public by the issue of shares or debentures, a public company has to comply with the provisions of the Companies Act, the Securities Contracts (Regulations) Act including the Rules made there under and the Guidelines and instructions issued by the concerned Government authorities, the Stock Exchange and SEBI, etc. Management of public issue involves coordination of activities and cooperation of a number of agencies such as managers to the issue, underwrites, brokers, registrars to the issue, solicitors/legal advisors, printers, publicity and advertising agents, financial institutions, auditors and other Government/Statutory agencies such as registrar of Companies, Reserve Bank of India, stock exchange, SEBI, etc.
It is advisable to keep in mind the guidelines issued by
SEBI with regard to issue of
shares termed as "Guidelines for Disclosure and
investor protection” before issuing shares to the public.
Share application form to seek permanent account number. In respect of applications for value of Rs 50,000 or more, the applicant or in case of applications in joint names, each of the applicant, shall mention his/her permanent account numbers/GIR numbers and incomes-tax circle, ward, district or the fact of non-allotment of PAN/GIR numbers, as the case may be and applications not complying with the provisions are liable to be rejected.
Share application form to seek permanent account number. In respect of applications for value of Rs 50,000 or more, the applicant or in case of applications in joint names, each of the applicant, shall mention his/her permanent account numbers/GIR numbers and incomes-tax circle, ward, district or the fact of non-allotment of PAN/GIR numbers, as the case may be and applications not complying with the provisions are liable to be rejected.
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