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SHARES&
DEBENTURE
PREPARED BY:-Ravi AhujaAnurag GelaniSheetal VermaAkanksha GoswamiBhavin Rathod
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STUDENT OF BHILAI BUSINESS SCHOOL BHILAI CHATTISHGARH
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Introduction Meaning of shares & share capital Types of share & their
advantages & disadvantages Issue of shares Meaning of debenture & its types Real Life IPO & FPO Example conclusion
CONTENTS
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INTRODUCTION
Companies (Private and Public) need capital either to increase their productivity or to increase their market reach or to diversify or to purchase latest modern equipments.
Companies go in for IPO and if they have already gone for IPO then they go for FPO.
The only thing they do in either IPO or FPO is to sell the shares or debentures to investors.(the term investor here represents retail investors, financial institutions, government, high net worth individuals, banks etc).
Whether they issue shares or debentures totally depends upon the concerned company.
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A share is one unit into which the total share capital is divided. Share capital of the company can be explained as a fund or sum with which a company is formed to carry on the business and which is raised by the issue of shares.
Shares are the marketable instruments issued by the companies in order to raise the required capital.
These are very popular investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm.
MEANING OF SHARES& SHARE CAPITAL
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The shares which are issued by companies are of two types:
• Equity Shares• Preference Shares
TYPES OF SHARES
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Equity Shares are issued and are traded everyday in the stock market.
Equity share holders only get dividend after preference shareholders & debenture holders.
The returns on the equity shares are not at all fixed. It depends on the amount of profits made by the company.
The board of directors decides on how much of the dividends will be given to equity share holders. Share holders can accept to it or reject the offer during the annual general meeting.
Equity shareholders have the right to vote on any resolution placed before the company.
EQUITY SHARES
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The Equity share is a common name, some of the types of equity shares are:
• Blue Chip Shares• Income Shares• Growth shares• Cyclical Shares• Defensive shares• Speculative shares
TYPES OF EQUITY SHARES
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One more classification of shares is given by one of the most successful and respected investor all around the world Peter Lynch. According to him the shares can be classified into 6 types:
• Slow Growers• Fast Growers• Stalwarts• Cyclical• Turn-around• Asset plays
FURTHER CLASSIFICATION
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ADVANTAGES• High Return• Easily Transferable.• These can be easily liquidated.• Right to vote• Right to choose the board of directors.• Equity share holders have the right to oppose any of the decisions taken by the board of directors.( for e.g. This is what happened when Mr. Ramalinga raju tried to buy Maytas company)
DISADVANTAGES• High Risk• In worst cases less privilege given to equity share holders.
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These are other type of shares. The preference shares are market instrument issued by the companies to raise the capital. Preference shares have the characteristics of both equity shares and debentures. Fixed rate of dividends are paid to the preference share holder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference share holders.
PREFRENCE SHARE
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Preference shares are divided into:
• Cumulative & Non cumulative shares
• Redeemable & Non-redeemable
• Convertible & Non-convertible shares
• Participating and non-participating
TYPES OF PREFERENCE SHARES
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ADVANTAGES• These yield fixed rate of returns• It’s a hybrid instrument having some of the characteristics of debentures and equity shares.
DISADVANTAGES• They do not provide the investor with any of the voting rights.• If the company gets huge profits then they won’t get any extra bonus.
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ISSUE OF SHARES
Prospectus
Application
Repayment/ dividend
Allotment
Detail of a Company & Shares in Prospectus. 90 % application is necessary If access application received then company issue shares by pro rata basis
full amount can be called up by company at the time of application or it can be paid up in installments also (calls)
share of the company may be issued in any of the following three ways:
1. At par;2. At premium; and3. At discount.
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Issue of shares for consideration other than cash (For example: issue of shares to vendors, to promoters etc.)
Forfeiture of shares
Buy – Back of Shares
Right Shares
Redemption of preference shares/ Debenture
CONT….
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Instrument of debt executed by the company
A certificate of loan Company pays pre specified percentage of
interest Part of the company's capital structure Debentures are generally secured against
the company’s assets Convertible debentures can be either fully
or partly converted into Shares Convertible debentures may carry a lower
rate of interest
DEBENTURES
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Security Point of Viewi. Secured Debenturesii. Unsecured Debentures
Tenure Point of Viewi. Redeemable Debenturesii. Perpetual Debentures
Mode of Redemption Point of Viewi. Convertible Debenturesii. Non-Convertible Debentures
Coupon Rate Point of View
TYPES OF DEBENTURES
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ADVANTAGES1. Control of company is not surrendered to debenture holders because they do not have any voting rights.2. Interest on debenture is an allowable expenditure under income tax act, hence incidence of tax on the company is decreased.3. Debenture can be redeemed when company has surplus funds.
DISADVANTAGES1. Cost of raising capital through debentures is high of high stamps duty.2. Common people cannot buy debenture as they are of high denominations.3. They are not meant for companies earning greater than the rate of interest which they are paying on the debentures.
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Jaypee Infratech Ltd. Sector 128, , District Gautam Budh Nagar , Noida , Uttar Pradesh -
201304 Phone: 4609000 Fax: 4609783
Public Issue of 224799496 Equity Shares of Rs 10 each for Cash at a Premium of Rs 92 per share.
Issue Open Date Issue Closing Date Application Money Allotment Money29/04/2010 04/05/2010 102 -
Listed at
BSE, NSE
Object of the issue
.The Issue comprises a Fresh Issue and an Offer for Sale. The Proceeds of Fresh Issue The activities for which funds are being raised by our Company through this Issue, after deducting the proceeds from the Offer for Sale: (i) to partially finance the Yamuna Expressway Project; and (ii) general corporate purposes. (collectively referred to herein as the "Objects"). In addition, our Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges.
IPO EXAMPLE
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NTPC Limited (Company) enter market with FPO
FPO opens on February 03' 10
India’s largest power generation company NTPC Limited (Company) will enter the capital markets on February 3, 2010 with its further public offer (FPO) of 412,273,220 equity shares of Rs 10 at prices to be determined through an alternative book building process under part D of Schedule XI of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The FPO will close on February 5, 2010.
FPO EXAMPLE
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CONCLUSION
No doubt equity shares have both advantages and disadvantages but the fact is that equity shares are the most sought financial instruments for both investment or for speculation.
