SHARES

SHARESTypes

Authorized Share Capital :Authorized share capital is the number

of ordinary shares capital that a firm can raise without further

shareholder approval.

Issued Capital : The portion of the authorized capital offered by

the company to the investors is the issued capital.

Subscribed Share Capital : Subscribed share capital is the number

of share (capital) outstanding.

Paid-up Capital :The actual amount paid by the shareholders is

the paid-up capital.

Par (face) Value : Par (face) value is a value arbitrarily placed on

the shares.

FEATURES OF SHARES

Residual claim to income

Residual claim on assets

Right to control

Pre-emptive rights

Limited liability.

LEGAL FRAMEWORK

Legal

Framewor

k

Companies

Act,

1956 Securities

And

Exchange

Board of

India Act,

1992

The

Depositori

es

Act, 1996All the

Rules &

Regulation

s

Listing

Agreemen

ts

Securities

Contract

(Regulation

)

Act, 1956

FUND RAISING OPTIONS

Initial Public

OfferAn Offer of SPECIFIED

SECURITIES by an unlisted

issuer to the public for

subscription and includes offer

for sale of specified securities

to the public by any existing

holders of such securities in an

unlisted issuer.

RIGHTS ISSUEAn offer of SPECIFIED

SECURITIES by a listed

issuer to the shareholders of the

issuer as on the record date

fixed for the said purpose.

FPOAn offer of SPECIFIED

SECURITIES by a listed

issuer to the public for

subscription and includes an

offer for sale of specified

securities to the public by

any existing holders of such

securities in a listed issuer.

BONUS

ISSUES.

A premium or gift, usually

of stock, by a corporation to

shareholders’ or “an extra

dividend paid to

shareholders in a joint stock

company from surplus

profit.”

QIPA designation of a securities

issue given by the Securities

and Exchange Board of

India (SEBI) that allows an

Indian-listed company to raise

capital from its domestic

markets without the need to

submit any pre-issue filings to

market regulators.

Preferential

AllotmentAn issue of SPECIFIED

SECURITIES by a listed issuer to

any select person or group of persons

on a private placement basis and does

not include an offer of specified

securities made through a public

issue, rights & bonus issue, ESOP,

ESPS or QIP or sweat equity or

Depository receipts.

Debt Securities A non-convertible debt

securities (NCD) which creates

or acknowledges indebtedness,

and include debenture, bonds

and such other securities of a

body corporate or any statutory

body, security receipts and

securitized debt instruments.

IDR An Indian Depository

Receipt is an instrument

denominated in Indian

Rupees in the form of a

depository receipt created

by a Domestic Depository

(custodian of securities

registered with the SEBI)

against the underlying

equity of issuing company to

enable foreign companies to

raise funds from the Indian

securities Markets.

Investor Categories

QIB means;

A MF, VCF, FVCF

Foreign Institutional investor

Public Financial Institution

Scheduled commercial bank

Multilateral and bilateral development financial institution

State Industrial development corporation

Insurance Company

Provident Fund ( Min Corpus 25 Cr )

Pension fund ( R 25 Cr )

National Investment Fund

Insurance funds setup and managed by the Dept of Posts, India”

Retail Investor means an investor who applies or bids

for specified securities for a

value of not more than

Rs. 2 Lakh

Non Institutional investor means an investor other than a retail individual

investor and qualified

institutional buyer

Key Parties and Responsibilities for an IPO

Book Running

Lead Manager

Book Runners’

Legal Counsel

Broker /

Syndicate

Advertising

AgencyPrinters

IPO

Grading

Agency

RegistrarsEscrow

Bankers

Issuer

Company /

Selling

Shareholder

Arrangement

Coordination

Legal

Counsels

Book building

Book-building is a process of price discoveryused in public offers. The issuer sets a floorprice and a band within which the investor isallowed to bid for shares.

The upper price of the band can be a maximumof 1.2 times the floor price.

The investor had to bid for a quantity of shareshe wished to subscribe to within this band.

Book building

Bids to remain open for at least 5 days

Only electronic bidding is permitted

Bidding demand is displayed at the end of

every day.

The lead manager analyses the demand

generated and determines the issue price or

cut-off price in consultation with the issuer.

Cut-off price

The cut-off price is the price discovered by

the market. It is the price at which the

shares are issued to the investors.

Investors bidding at a price below the cut-off

price are ignored.

Example of Book Building

Let’s say a company wants to issue

10,00,000 shares. The floor price for one

share of face value, Rs10, is Rs48 and the

band is between Rs48 and Rs55.

At Rs55, on the basis of bids received, the

investors are ready to buy 2,00,000 shares.

So the cut-off price can not be set at Rs55

as only 2 lacs shares will be sold.

So as a next step, the price is lowered to

Rs54. At Rs54, investors are ready to buy 4

lacs shares. So if the cut-off price is set at

Rs54, 6 lacs shares will be sold. This still

leaves 4 lacs shares to be sold.

The price is now lowered to Rs53. At Rs53,

investors are ready to buy 4 lacs shares.

Now if the cut-off price is set at Rs53, all ten

lacs shares will be sold.

Investors who had applied for shares at

Rs55 and Rs54 will also be issued shares at

Rs53.

Book Building

Objective is efficient price discovery.

Asymmetric information between promoter and

investors.

Investors always remain in dark.

Private placement

It involves issues of securities to a limited number

of subscribers, such as banks, FIs, MFs and high

net worth individual.

It is arranged through a merchant banker, an agent

of issuers, who brings together the issuers and

investor(s).

Securities offered are exempt from public disclosers

regulations and registration requirements of the

regulatory body.

This market is preferred by small and medium size

firms, particularly new entrants who do not have

track record of performance.

Private Placement vs Public Issues

Private Placement Public Issues

1. Issues are offered to mature

and sophisticated institutional

investors.

2. No discloser requirements.

3. Issues are not screened and

this increases the risk.

1. Issues are primarily offered to

retail investors.

2. Discloser requirement is

there.

3. All issues are screened.

DEMATERIALISATION OF SHARES:

Trading in the shares of the Company is

compulsory in dematerialized form for all

investors.

The Company has, therefore, enlisted its

shares with both the depositories, viz, National

Securities Depository Limited (NSDL) and

Central Depository Services India Limited

(CDSL).

What is Dematerialization?

Dematerialisation is a process by which thephysical share certificates of an investor aretaken back by the Company and anequivalent number of securities are creditedin electronic form at the request of theinvestor.

An investor will have to first open anaccount with a Depository Participant sothat the dematerialised holdings can becredited into that account.

This is very similar to opening a BankAccount.

What is a Depository?

A Depository (NSDL & CDSL) is an

organisation like a Central Bank where the

securities of a shareholder are held in the

electronic form at the request of the

shareholder through the medium of a

Depository Participant.

Who is a Depository Participant?

A Depository Participant (DP) is yourrepresentative (agent) in the depositorysystem providing the link between theCompany and you through the Depository.

While the Depository can be compared to aBank, DP is like a branch of your bank withwhom you can have an account.

According to SEBI guidelines, FinancialInstitutions like banks, stockbrokers etc. canbecome participants in the depository.

How does the Depository System

operate?

The Depository System functions very muchlike the banking system.

A bank holds funds in accounts whereas aDepository holds securities in accounts forits clients.

A Bank transfers funds between accountswhereas a Depository transfers securitiesbetween accounts.

In both systems, the transfer of funds orsecurities happens without the actualhandling of funds or securities.