Securities Transaction Tax was introduced by Ex-Finance Minister, P. Chidambaram in the Budget 2004. However, it came into effect from October 2014. The sole objective behind the enforcement of the...
The issue of shares by Public Limited Company is governed under the provisions of Companies Act 2013. Public Company got incorporated under this act with limited liabilities of its members. A public company can offer its shares to the public in several ways that are described in detail in this blog henceforth.
Following is the procedure to issue new shares by the Public Limited Company:
- Issue of Prospectus: Prospectus is an invitation to the public in large for inviting them to subscribe for the shares of the company. The prospectus contains complete details such as the financial position of the company, the number of shares offered, the price of such shares, etc.
- Receipt of Application: After the receipt of the prospectus, interested investors can apply through application and deposit of specified application money with the scheduled bank as mentioned in the prospectus. The subscription remains to open up to 120 days. The company shall refund the application with 130 days of issue of a prospectus in case the minimum subscription has not been reached.
- Shares allotment: Shares are allotted on a pro-rata basis if the minimum subscription is received. Allotment letter is offered to the investors to whom shares are issued.
Share Issue by Public Company
As per the Companies Act, a public company can issue the shares to the public in the following methods:
• Public Issue
• Private Placement
• Right Issue
• Bonus Issue
- Public Issue: Public issue is the offering of shares for public subscription to attract new investors. In public issues, shares are offered to the general public for sale to raise the capital of the company. A company that sells the shares is known as the issuer and the public who subscribe to the shares known as investors of the company. The company can make the public issue in the following types:
- IPO: IPO known as Initial Public Offer is the sale of shares to the public for the first time. When a private, unlisted company or listed company allots the shares to the public for the first time is known as Initial Public Offer. Through IPO, the unlisted company can go public and can list their shares in the recognised stock exchange.
- FPO: Further Public Offer is the allotment of shares by an already listed company. The public company issues the shares to the public for subscription for the second time to expand its equity base.
- Right Issue: When the public company, issue the shares to its existing shareholders at the concessional price on a pre-determined date. The right issue is the offering of shares to the existing shareholders in proportion to their shareholding in the company. When the company wants to raise the additional fund without involving any public.
- Bonus Issue: As the name suggests bonus issue is the issue of shares by the company to its existing members for free in proportion to the fully-paid shares held by them. Since it enhances the total number of issued shares, there is no increase in the value of the company. The company in-lieu makes a bonus issue of dividend payable in case it doesn’t have sufficient cash or fund for distribution dividends.
- Private Placement: In the company wants to raise the substantial amount by the issue of shares to the selected group such as Banks, insurance companies, pension funds, angel investors, etc., is known as a private placement. Private Placement can be of following three types:
- Preferential Issue: Preferential issue is the allotment of shares by publicly listed enterprises to big investors such as venture capitalists, companies, etc.
- Qualified Institutional Placements: The listed company allots the shares or convertible securities to the qualified institutional buyer such as mutual fund, venture fund, public financial institution, commercial banks, scheduled banks, etc., to raise the capital.
- Institutional Placement Program: If the public company allots the shares for sale to public or promoters offer their shares for sale to qualified institutional buyers only is termed as Institutional Placement Program.
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Types of Shares Issued
Shares are the basis of ownership in the company, and the holder of such shares is known as owner/member/shareholder of the company. Two types of shares are issued in the Company:
- Preference Shares: Preference shares don’t have any voting right in the company; however, they have two exclusive benefits over equity shares:
- When the company declares the dividend, preference shareholders get the preference in dividends over the equity shareholders.
- At the time of liquidation, preference shareholders get preference over the equity shareholders for the repayment of capital.
- Equity Shares: Equity Shares are the shares that come with the right to vote in the affairs of the company. Equity shareholders have the benefit of holding equity in the company and are termed as the owner of the company. Depending upon the financial performance of the company, dividends get distributed to equity shareholders, and in case there is loss or insufficient income, the company has the authority not to give any distribution to the shareholders.