Meaning of Issue of share
Issue of share is a process through which company issues fresh shares to present and new shareholders for raising required capital. Share is termed as the smallest unit of company’s overall capital. Shareholders of company can either be corporates, institutions or individuals. A procedure of share issue is conducted by companies in accordance with rules prescribed in companies act 2013. Issue of shares is composed of three basic steps that are issuing prospectus, receiving applications and finally allotment of shares. These steps are followed by every company while initiating their process of issuing shares. Process of creating new shares by company is termed as Allotment or Allocation. Shares are issued by companies for acquiring funds from general public for financing its operations, repaying debts, funding new projects or for acquisition of other companies.
Types of Issue of Shares
Various types of share issue are as discussed below: –
Public issue is an issue where shares or convertible securities are issued by company in primary market with the help of its promoters. Under this type of issue, shares are offered to general public for raising the needed funds by enterprise. Companies issues a prospectus for attracting investors and those who are willing to subscribe for shares are required to make an application to company. Company after receiving applications then finally issues shares to public.
Public issue is of 2 kinds: Initial public offer (IPO) and Further public offer. Initial public offer is one where company sale its shares to general public for the first time by listing them at recognized stock exchange. Whereas, when listed companies after going for IPO issues additional shares to peoples, such issue is termed as further public offer. Such issue is done for expansion of equity base or pay back of debts by companies.
Right issue refers to selling of shares or convertible securities to present shareholders by companies. This issue is made at a concessional rate on specified time set by company itself. Right issue is done for raising additional amount of funds via issuing shares to existing equity shareholders in proportion of their shareholdings in place of doing a fresh issue.
Bonus issue refer to offering of free shares by company to current shareholders in addition to shares held by them. These shares are issued in proportion to fully-paid up equity shares held by shareholders. Bonus shares are issued free of any cost and are made out of free reserves or securities premium account of company.
A composite issue is made by previously registered company. Under this type of issue, company issues share on public-cum-rights basis and make shares allotment on concurrent basis.
Private placement is such issue of shares under which company offers its share to selected group of investors that can be banks, pension funds, insurance companies, mutual funds and so forth in order to acquire the required funds. Various kinds of private placement are Preferential issue, Institutional Placement Program (IPP) and Qualified Institutional Placement (QIP).
Preferential Issue: When a public listed company issues its shares to a selected group of investors like venture capitalists, individuals and companies on preferential basis is termed as a Preferential Issue.
Qualified Institutional Placement (QIP): It is an issue in which a company that is publicly listed offers its equity shares or convertible securities to a qualified group of institution buyers for sale to acquire needed funds. Qualified institutional buyers consists of venture capital funds, mutual fund, insurance funds, pension funds, scheduled commercial banks, public financial institutions etc.
Institutional Placement Programme (IPP): It is when a public listed company makes a follow on offer of equity shares or shares are offered for sale by promoter. Shares are issues to QIBs only under it with the aim of attaining minimum shareholding of public.