{"id":6403,"date":"2019-10-05T16:57:30","date_gmt":"2019-10-05T11:27:30","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=6403"},"modified":"2021-04-05T14:10:42","modified_gmt":"2021-04-05T08:40:42","slug":"advantages-and-disadvantages-of-public-issue-a-complete-guide","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/","title":{"rendered":"Advantages and Disadvantages of Public Issue &#8211; A Complete Guide"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Companies rely on various sources of funds to meet their financial needs for day to day expenses or to meet its working capital requirements. The fund required can be for the long-term or short-term needs of the company.<\/p>\n\n\n\n<p>A company obtains funds from various sources such as debenture issue, issue of shares, loans, and financial assistance from banks, etc., depending upon the type of project for which it needs the fund.<\/p>\n\n\n\n<p><em>The share issue is the most common method of raising the fund and can be done through the following alternates:<\/em><\/p>\n\n\n\n<ul><li>Private Placement<\/li><li>Right Issue<\/li><li>Bonus Issue<\/li><li><a href=\"https:\/\/swaritadvisors.com\/preferential-allotment\">Preferential Allotment<\/a><\/li><li><a href=\"https:\/\/swaritadvisors.com\/public-issues\">Public Issue<\/a><\/li><\/ul>\n\n\n\n<p><div class=\"shadow3\">Section 23 of the Companies Act 2013, governs the issue of shares for subscription by the public through the issue of prospectus. The public issue is the selling and marketing of the company&#8217;s shares to the public. A company, by way of a public issue, gets to list itself on a recognized stock exchange in India.<\/div><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a5504f4ed140\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a5504f4ed140\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#Regulation_governing_public_issue\" title=\"Regulation governing public issue\">Regulation governing public issue<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#Types_of_Public_Issue\" title=\"Types of Public Issue\">Types of Public Issue<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#Prerequisite_for_an_IPO\" title=\"Prerequisite for an IPO\">Prerequisite for an IPO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#The_Procedure_of_Initial_Public_Offer\" title=\"The Procedure of Initial Public Offer\">The Procedure of Initial Public Offer<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#Advantages_of_public_Issue\" title=\"Advantages of public Issue\">Advantages of public Issue<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#Disadvantage_of_Public_Issue\" title=\"Disadvantage of Public Issue\">Disadvantage of Public Issue<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#What_is_the_Lock-in_requirement_for_IPO\" title=\"What is the Lock-in requirement for IPO?\">What is the Lock-in requirement for IPO?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#For_what_duration_the_issue_remains_open\" title=\"For what duration the issue remains open?\">For what duration the issue remains open?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-public-issue-a-complete-guide\/#Who_are_the_registered_intermediaries_as_per_SEBI\" title=\"Who are the registered intermediaries as per SEBI?\">Who are the registered intermediaries as per SEBI?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Regulation_governing_public_issue\"><\/span>Regulation governing public issue<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following acts and regulations govern the public issue:<\/p>\n\n\n\n<ul><li>Provisions of the Companies Act, 2013.<\/li><li>SEBI rules &amp; regulations<\/li><li>Other regulations, such as the Securities Contract (Regulation) Act, 1956, regulations of RBI, etc.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_Public_Issue\"><\/span>Types of Public Issue<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>SEBI regulates the entry norms of the <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/swaritadvisors.com\/public-issues\" target=\"_blank\"><strong><em>public issue<\/em><\/strong><\/a> through (Disclosure of Investor &amp; Protection) Guidelines, 2000. These guidelines have been updated from time to time by SEBI for better transparency and protection of investors for the development of Capital Market. The public Issue can be classified into the following three categories:<\/p>\n\n\n\n<ul><li>Initial Public Offer (IPO) for unlisted entities<\/li><li>Further Public Offer (FPO) for listed entities<\/li><li>Offer for Sale.<\/li><\/ul>\n\n\n\n<ul><li><strong>IPO<\/strong><\/li><\/ul>\n\n\n\n<p>Unlisted companies are the Public companies which are not listed or traded in any of the stock exchange. Such companies enter the public market through IPOs. IPO is when a company offers shares to the public for the first time. In general, IPOs are riskier as compared to FPOs because a company goes public for the first time and has started raising capital via public investment.<\/p>\n\n\n\n<ul><li><strong>FPO<\/strong><\/li><\/ul>\n\n\n\n<p>Listed companies are those which are listed on the stock exchange and have already complied with the procedures of IPO. Listed companies can raise funds through public issues for subsequent public investment. As the investors have a fair idea of the company and its growth prospects, FPOs are less risky than an IPO.<\/p>\n\n\n\n<ul><li><strong>Offer for Sale<\/strong><\/li><\/ul>\n\n\n\n<p>Members of a company can offer a part of their entire holding to the public in consultation with the <strong>Board of Directors<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Board_of_directors\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> Offer document for an offer for sale is deemed to be the prospectus. The members of the Company will reimburse any expenses concerning the offer. Any dividend declared or payable on these offered shares will be paid to the transferee.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Prerequisite_for_an_IPO\"><\/span>Prerequisite for an IPO<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Following are the conditions to be fulfilled by the companies before making an IPO:<\/em><\/p>\n\n\n\n<ul><li>Company shall have Net Intangible Asset of minimum INR 3 Crore for the preceding 3 years.<\/li><li>The monetary asset should not be more than 50% of such net intangible assets.<\/li><li>The Company has incurred profit for 3 years out of immediately 5 preceding years.<\/li><li>Pre-issue net worth for the previous 3 years shall be at least INR 1 Crore.<\/li><li>The Company shall keep the issue size not exceeding 5 times its pre-issue net worth.<\/li><\/ul>\n\n\n\n<p>If the company doesn&#8217;t satisfy the conditions mentioned above, it can make IPO only if it meets the following terms:<\/p>\n\n\n\n<ul><li>a) At least 50% of the IPO shall be allotted to Qualified Institutional Buyers.<\/li><\/ul>\n\n\n\n<p style=\"text-align:center\">OR<\/p>\n\n\n\n<p>At least 15% of the issue shall be issued to Financial Institution, and 10% shall be issued to Qualified Institutional Buyers.<\/p>\n\n\n\n<p style=\"text-align:center\">AND<\/p>\n\n\n\n<ul><li>b) Minimum face value capital of the company shall be INR 10 Crore after issue<\/li><\/ul>\n\n\n\n<p style=\"text-align:center\">OR<\/p>\n\n\n\n<p>Minimum 2 years of compulsory market-making shall be there. Market making means marketing or selling of the shares or securities of a defined set of companies to the broker those are the members of such exchange.<\/p>\n\n\n\n<p>If the company fails to comply with this, it has to refund the entire amount of subscription.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Procedure_of_Initial_Public_Offer\"><\/span>The Procedure of Initial Public Offer<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following is the list of steps to be followed by the company to raise funds through the initial public issue:<\/p>\n\n\n\n<p><strong>a)<\/strong> The company starts the process by hiring investment banks to seek their advice and guidance for public offers. There is an underwriting agreement signed between the parties.<\/p>\n\n\n\n<p><strong>b)<\/strong> Then the company has to file a registration statement with the Securities &amp; Exchange Commission. This statement contains the complete details of the business plan of the Company, along with the declaration about how the company is going to utilize the funds raised through the IPO.<\/p>\n\n\n\n<p><strong>c)<\/strong> The company has to issue the initial prospectus that contains the details such as a number of shares, the price of the shares, etc. It is known as red herring prospectus.<\/p>\n\n\n\n<p><strong>d)<\/strong> The issuer, then, in consultation with investment banks, decides the price for the issue. Such price is based on the rate that prevails in the market. The company also uses other methods for fixation of the cost, such as EPS, PE multiple, return on net worth, etc.<\/p>\n\n\n\n<p><strong>e)<\/strong> Application form and prospectus are made available to the public for the subscription of shares. These forms are made available either online through its website or offline in which the investors can get the form from the designated bank.<\/p>\n\n\n\n<p><strong>f)<\/strong> After the price is fixed for the issue, the company then decides about the minimum post-issue holding of an investor.<\/p>\n\n\n\n<p><strong>g)<\/strong> The company can trade on the stock exchange once the shares are allotted to the investors, and such shares are credited to the Demat account of the investors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_public_Issue\"><\/span>Advantages of public Issue<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li> <strong style=\"font-size: inherit;\">Repayment of capital<\/strong><span style=\"font-size: inherit;\">: There is no question of repayment of capital except when the company goes into liquidation.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Interest rate<\/strong><span style=\"font-size: inherit;\">: There is no fixed cost bearing interest payment, unlike debentures.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Enhancing value<\/strong><span style=\"font-size: inherit;\">: The company&#8217;s value increased when its shares are traded on the stock exchange, as it reflects more transparency on the company\u2019s part.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Transferability<\/strong><span style=\"font-size: inherit;\">: Ownership is easily transferable as shares are freely transferable as compared to debentures.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Liquidity<\/strong><span style=\"font-size: inherit;\">: Shares are more liquid as compared to other forms of securities.<\/span> <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantage_of_Public_Issue\"><\/span>Disadvantage of Public Issue<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li> <strong style=\"font-size: inherit;\">Lengthy procedure<\/strong><span style=\"font-size: inherit;\">: The public issue of shares is a lengthy, complex procedure and is quite time-consuming.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Expensive<\/strong><span style=\"font-size: inherit;\">: Shares are costlier as they involve dividend payments in comparison to low interest-bearing debentures.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Complex<\/strong><span style=\"font-size: inherit;\">: Public issue is a very complex procedure and attracts plenty of legal rules and regulations.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Control<\/strong><span style=\"font-size: inherit;\">: There will be a dilution of control over the company with the addition of the new shareholders who would be involved in the affairs of the company.<\/span> <\/li><li> <strong style=\"font-size: inherit;\">Less Privacy<\/strong><span style=\"font-size: inherit;\">: There are several transparencies required that lead to a minimization of the privacy of the company.<\/span> <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Lock-in_requirement_for_IPO\"><\/span>What is the Lock-in requirement for IPO?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The promoter shall contribute at least 20% of the post-issue capital. Such a promoter\u2019s contribution shall be locked-in for 3 years. However, the pre-issue capital of the promoter shall be locked in for 1year. For calculating the lock-in period of 3 years or 1 year, as the case may be, the later of the following dates shall be considered:<\/p>\n\n\n\n<ol><li>a) The date of commencement of business<\/li><li>b) The date of allotment of public issues.<\/li><\/ol>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"For_what_duration_the_issue_remains_open\"><\/span>For what duration the issue remains open?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The duration of the issue depends upon the type of issue, such as:<\/p>\n\n\n\n<ol><li>a) For Fixed-Price Issue, it remains open for 3 to 10 working days<\/li><li>b) For Book Built Issue, it remains open for 3 to 7 working days<\/li><li>c) In case of a Rights issue, it remains open for 15 to 30 days<\/li><\/ol>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_are_the_registered_intermediaries_as_per_SEBI\"><\/span>Who are the registered intermediaries as per SEBI?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Following are the registered intermediaries holding the valid certificate under SEBI:<\/p>\n\n\n\n<ul><li>Merchant Banker<\/li><li>Underwriters<\/li><li>Registrar &amp; Transfer agent<\/li><li>Bankers to the issue<\/li><li>Stock Broker &amp; Sub Broker<\/li><li>Depositories<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/procedure-for-issue-of-sweat-equity-shares-in-india\/\">Procedure for Issue of Sweat Equity Shares in India<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Companies rely on various sources of funds to meet their financial needs for day to day expenses or to meet its working capital requirements. The fund required can be for the long-term or short-term needs of the company. A company obtains funds from various sources such as debenture issue, issue of shares, loans, and financial [&hellip;]<\/p>\n","protected":false},"author":11,"featured_media":6419,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[546],"tags":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6403"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=6403"}],"version-history":[{"count":21,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6403\/revisions"}],"predecessor-version":[{"id":18525,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6403\/revisions\/18525"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/6419"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=6403"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=6403"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=6403"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}