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Overview of Public Issues

A company relies on various sources of funds, like public issues, debentures, financial assistance from banks, etc., to meet its day-to-day business needs and working capital requirements. The fund requirement of a company can either be short term or long term and depends upon the type of project it is working. The sources of funds available in India can be classified as:

  • Public Issue:
  1. Initial Public Offer (IPO)
  2. Further Public Offer (FPO)
  3. Offer for Sale
  • Right Issue
  • Bonus Issue
  • Private Placement:
  1. Preferential Issue
  2. Qualified Institutional Placement

In India, Public Issues is one of the most prevalent forms of raising funds from a large group of people. In this, a company offers prospectus to invite general public to purchase its shares by paying the share application money. Hence, it is a way of offering convertible shares or securities in the primary market to attract new investors for the subscription.

Regulatory Framework for Public Issues

In India, the legal provisions regulating the Public Issues are as follows:

  • Chapter 3, Part 1 of the Companies Act, 2013;
  • Rules and Regulations of the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulation, 2018;
  • Rules and Regulation of Securities Exchange Board of India (Listing Obligations and Disclosures Requirements) Regulations, 2015;
  • The Securities Contracts (Regulations) Act, 1956.

Advantages of Public Issues

The advantages of Public Issues can be summarised as follows:

  • Repayment of Capital: If a company raises capital through Public Issues, there is no need to repay it except when the company goes into the winding-up process.
  • Rate of Interest: Unlike debentures, public issues do not provide any fixed rate of interest.
  • Transfer of Securities: In comparison to debentures, the ownership of a shareholder is easily transferable in public issues. 
  • Liquidity: As compared to any other form of securities, shares are more liquid, as they can be converted into cash easily.
  • Enhancing value: The goodwill of a company increases when it trades shares on a recognized stock exchange. It also increases the level of transparency and trust among the investors and the public.

Types of Public Issues

The entry norms of the public issue are governed by the SEBI (Securities Exchange Board of India) through its provisions under the SEBI (Disclosure for Investor & Protection) Guidelines, 2000. In India, the types of public issues can be summarised as:

  • Initial Public Offer (IPO) for Unlisted Companies;
  • Further Public Offer (FPO) for Listed Companies;
  • Offer for Sale.

Initial Public Offer: For Unlisted Companies

An unlisted company is a public company that is not listed on a stock exchange, nor its shares are traded in any recognized stock exchange, can also enter the primary market through Initial Public Offer. IPO is the first time when an unlisted company offers its shares to the public. Therefore, the process of IPO acts as a turning point for any unlisted company, as it helps in raising funds through public subscriptions. However, this process is much more risker than the Further Public Offer, as a company enters the market for the first time by issuing a prospectus.

Conditions Relating to Initial Public Offer

The following are the conditions that must be fulfilled before undergoing the Process of Initial Public Offer:

  • The company shall have net tangible assets of worth Rs 3 crores for the previous three financial years. Also, 50% of these assets are known as monetary assets. However, if a company makes public issues through an offer for sale, the limit of 50% is not applicable.
  • The company needs to have a profit of a minimum Rs 15 crores for three years out of the immediately preceding five financial years. Such a profit must be an operating profit, i.e., PBT (Profit before Tax).
  • The company shall have a net worth of Rs 1 crore for the previous three financial years.
  • If a company decides to change its name, then at least 50% of the income generated in the previous financial year must be from the new activity represented by the new name.
  • The company shall not exceed the issue size five times the pre-issue net worth.

If a company does not fulfill the conditions prescribed above, it can make Initial Public Offer only if it satisfies the following terms:

  • An issue is made through the book-building process, with at least 75% of the net offer allotted to the QIBs (Qualified Institutional Buyers). If the company fails. Then it needs to refund the subscription received.

Lock-in Requirement for Initial Public Offer

The promoter of a company shall contribute at least 20% of the total post-issue capital. The lock-in period for such a contribution is three years. However, the lock-in period for pre-issue capital is one year. For determining the lock-in period, a company needs to consider the following dates:

  • Date of Commencement of business;
  • Date of Allotment of Public Issues.

Duration of Initial Public Offer

The duration of the Initial Public Offer depends upon the type of issue, such as:

  • Fixed Price Issue: It remains open for 3 to 10 working days;
  • Book Built Issue: It remains open for 3 to 7 working days;
  • Right Issue: It remains open for 15 to 30 days.

 Procedure for Initial Public Offer

In India, the steps involved in the process for Initial Public Offer are as follows:

  • Select an Investment Bank: A company needs to hire an investment bank for seeking advice and guidance for Initial Public Offer. After that, an underwriting agreement is signed between the parties which had all the details, such as of
  1. Number of securities to be issued;
  2. Price of the securities to be issued.
  • Register with SEBI: The Company needs to apply for registration with the SEBI that includes the complete details of the company’s business plan. It also needs to provide a declaration about the utilization of the capital it raised from an IPO.
  • Red Herring Prospectus: The directors of the company need to file an initial prospectus that includes the details of the price estimate of the shares. It is known as the Red Herring Prospectus because it contains the warning that states it is not the final prospectus.
  • Pricing of IPO: SEBI has no role to play in the pricing of shares. It is the issuer company that consults with the investment bank while fixing the issue price based on the market's prevailing rates. A company considers the following factor for determining the issue price:
  1. Employee Pension Scheme;
  2. Private Equity;
  3. Return on Net Worth, etc.

Further, a company can issue shares either through Fixed Price Issue or by Book-Built Issue. In a fixed price method, a share is issued at a fixed price. Whereas in a Book-Built method, the shares will have a price band within which an investor can bid.

  • Open Offer: A company can provide the application form and prospectus, both online and offline. Even investors can get the same from any designated bank. Further, the directors of the company need to submit an application form and the cheque to the designated bank.
  • Completion of IPO: After deciding the issue price, a company discusses the number of shares an investor will get. However, the company needs to make sure that the offer is fully subscribed. All the shares allotted will be credited to the DEMAT (Dematerialised) Account of the investors. Once the company has allocated the shares, it is ready to trade over the stock market.

Further Public Offer: For Listed Companies

When a listed company makes an offer for sale or comes out with a new issue of shares to the public to increase capital, it is known as Further Public Offer. FPO means a company that is already listed and has complied with the process of an IPO, issues share to the public. It is done for raising subsequent public investment. FPO is not as risky as an Initial Public Offer, as the investors are already aware of the company’s performance and have a fair idea about its growth opportunities.

Conditions relating to Further Public Offer

The following are the conditions that must be fulfilled before undergoing the Process of Further Public Offer:

  • If a company decides to change its name, then at least 50% of the income generated in the previous financial year must be from the new activity represented by the new name.
  • The company shall not exceed the issue size five times the pre-issue net worth according to the audited balance sheet of the preceding financial year.

If a listed company does not fulfill the conditions prescribed above, it can make Further Public Offer only by complying with QIB (Qualified Institutional Buyer) route, i.e., issue through book building method, with at least 75% to be compulsorily allotted to the QIBs.

Offer to Sale

The shareholders can offer a portion of their shareholding to the public in consultation with the BOD (Board of Directors). Prospectus of a company is considered as its LOI (Letter of Offer). Also, the shareholders of the Company will reimburse any expenses regarding the offer. Hence, any dividend paid or declared on these shares will be paid to the transferee.

Difference between IPO and FPO

Point of Difference

Initial Public Offer

Further Public Offer


Initial Public Offer refers to an offer of securities made for the first time by the company to the public for subscription.

Further Public Offer refers to an offer of securities made by a listed company to the public for subscription.

Issuer Company

Unlisted company

Listed company

Raising Capital

A company raises capital for the first time from the public.

A company raises capital from subsequent public investment.

Risk Factor

High Risk, as the company enters the primary market for the first time.

Comparatively low


The main objective of an IPO is to raise capital through public investment.

The main objective of an FPO is to raise capital by subsequent public investment.


Less predictable

More predictable


Higher than Further Public Offer

Lower than Initial Public Offer


Equity shares and Preference shares

Dilutive offering and Non-Dilutive offering.


Difference between Public Issue and Private Placement

Point of Difference

Public Issue

Private Placement


Public Issue is of the methods of raising share capital by selling securities to the public at large.

In Private Placement, a company sells securities directly to a few pre-decided numbers of investors or institutions.

Business Size

Public Issues is primarily used by large-scale companies to raise funds

Private Placement is generally used by small-scale companies to raise funds.

Floatation cost

For Public Issue, a floatation cost is included as there is a need for an underwriter.

For Private Placement, no floatation cost is included in the as there is no need for an underwriter.

Investment Bankers

In a Public Issue, the Investment Bankers act as a Mediator between the Issuer Company and Investors for raising long-term funds from the Capital Market.

In a Private Placement, there is no need for an investment banker to act as mediators as all the dealings are done directly done by the Issuer Company and Investors.


Kinds of Intermediaries

In India, the intermediaries required with a valid proof can be classified as:

  • Merchant Banker: Merchant Bankers are the most crucial intermediaries among all. From drafting prospectus to listing securities at the recognised stock exchange, they assist a company all along. Merchant Bankers can check and verify all the information provided in the prospectus, as they need to carry out due diligence for all the details that the prospectus provides. After that, they issue a certificate to the SEBI.
  • Underwriters: Underwriters are required to subscribe to the unsubscribed shares of the company. Therefore, underwriters come into play when there is a situation of under subscription of shares.
  • Registrar and Share Transfer Agent: The Registrar and the Share Transfer Agent decide the basis of making an allotment to the share application received from the public. They are also responsible for dispatching the share certificates or refund orders.
  • Issue Bankers: The Issue Banker accepts all the applications on behalf of the Issuer Company. These applications are then given to the Registrar and Share Transfer Agent to further process.
  • Stock Brokers and Sub Brokers: The Stock Brokers and Sub Brokers receive a commission from the Issuer Company for inviting the public to subscribe to the shares offered by it.
  • Depositories: Depositories hold securities in dematerialized (DEMAT) form for the shareholders. In India, there are two main depositories, i.e., CDSL (Central Depository Securities Limited) and NDSL (National Securities Depository Limited).

Package Inclusions

  • Free Consultation over the Phone regarding the Public Issues;
  • Submission of Application for Public Issue;
  • Preparation of the necessary documents;
  • Guidance on Allotment of Securities;
  • End-to-end Assistance.

FAQs for Public Issue

Whenever an Issue or Offer of Securities is made to the New Investors for becoming a part of Issuer’s Shareholders’ Family, it is known as a Public Issue.

The concept of Public Issue can be further bifurcated into:

  1. Initial Public Offer (IPO)
  2. Follow on Public Offer (FPO).
  3. Offer sale 

An unlisted company which is about to make a public issue and is eager of getting its securities listed on an RSE (Recognised Stock Exchange) pursuant to a public issue, may freely price its equity shares or any other securities convertible at a future date into equity shares.


Whenever an Offer or Issue of Securities is made to the New Investors for becoming a part of Issuer’s Shareholders’ Family, it is known as a Public Issue.

Whereas Right Issue is basically a formal invitation to the already existing shareholders to buy additional new shares in the company. Further, it is significant to note that the new shares that are offered to the existing shareholders are offered at the discounted rates than the market price.


The following listed are the provisions governing the concept of public issue:

  1. Companies Act, 2013
  2. Securities and Exchange Board of India (SEBI)

The necessity for marketing the public issue arises due to the highly competitive character of the capital market. Further, there is a surplus of companies that knock at the investor’s doors for seeking to sell their securities.

A Red Herring Prospectus is basically a prospectus, which does not include details and particulars either of the price or the amount of issue, or the number of shares being offered. Hence, this means that in case the price is not disclosed, then the number of shares along with the lower and upper price bands are disclosed.

Grey market is an unofficial market where traders bid & offer shares in upcoming IPOs. Since it is the unofficial market, trades are carried on through telephonic conversation. Before the company gets a list on the stock exchange, grey market traders start bidding based on the factors such as institutional appetite, retail appetite, etc.

Pricing of IPO is decided based on the supply & demand of the trade market. Usually, they are priced at the value customers want. The reason is if they are overpriced the company won't get sufficient gain and in case, they have under priced the chance of pocketing the profit after the listing is for a long period.

The lead manager declares that all the disclosure made in the offer documents are duly complied with as per the guidelines of SEBI and are in conformity for the disclosure and investor protection purposes.

Following are the types of documents issued:

  • Draft offer documents
  • Red herring prospectus
  • Offer document
  • Abridged prospectus

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