A share is that smallest part, into which the overall capital of the company is divided. Issue of shares is a process through which the company allocates fresh shares to the new or existing shareholders. The issue of shares is made to both individuals, institutions and body corporates.
Types of Issue of Shares
There are a number of ways in which the shares of a company can be issued, as discussed below:
- Public Issue: Public issue or public offering refers to the issue of shares or convertible securities in the primary market by the company’s promoters, so as to attract new investors for a subscription.
In a public issue, the shares are offered for sale in order to raise capital from the general public, for which the company issues a prospectus. The investors who want to subscribe for the shares make an application to the company, which then allots shares to them. The entity which makes an issue is called an Issuer.
- Initial Public Offer: Otherwise called an IPO, as its name suggests it is the sale of company’s shares to the public at large for the very first time. It is an offer in which an unlisted or privately held company makes a fresh issue of shares or convertible securities, or an already listed company makes an issue of existing shares or convertible securities, for the first time to the public at large.
In this way the unlisted or budding company lists its shares in the recognized stock exchange and goes public, to raise funds for running the business. On the other hand, established entities make IPO facilitate owners to sell some or all of their ownership to the public.
- Further Public Offer: If an already listed company, which has gone through an IPO offers new or in better words, additional shares to the public for sale, so as to expand their equity base or pay off debts, it is known as Follow-on Public Offer or Further Public Offer (FPO)
- Right Issue: In a right issue, shares or convertible securities are offered to the existing shareholders at a concessional rate, on a stipulated date, fixed by the company itself. The main aim of issuing right shares is to raise additional funds by offering shares to the existing equity shareholders, in the proportion of their holdings, rather than making a fresh issue.
- Composite Issue: A composite issue is one in which an already listed company offers shares on the public-cum-rights basis and makes concurrent allotment of the shares.
- Bonus Issue: As the name itself suggests, it is the free additional shares distributed to the current shareholders in the proportion of the fully paid-up equity shares held by them on a particular date. The issue of these shares is made out of the company’s free reserves or securities premium account.
- Private Placement: If a company offers shares to a selected group of investors which can be mutual funds, banks, insurance companies, pension funds and so forth, to raise capital, is called private placement.
- Preferential Issue: Preferential allotment is one in which a publicly listed enterprise allots shares to a selected group of investors such as individuals, venture capitalists, companies on preferential basis.
- Qualified Institutional Placement (QIP): If a listed organization offers equity shares or non-convertible securities to a qualified institutional buyer for sale to raise capital. Here qualified institutional buyer includes mutual funds, venture capital fund, public financial institutions, insurance funds, scheduled commercial bank, pension funds, etc.
- Institutional Placement Programme (IPP): If a publicly listed company makes a follow-on offer of equity shares or the promoters offers shares for sale, wherein the shares are allotted to the QIB’s only, with the aim of achieving minimum public shareholding.
The company issues share in order to raise funds from the general public, so as to apply these funds in business operations. However, they can also be issued to serve other purposes also, as the money can be utilized in repaying debts, funding a new project, acquiring another company.