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UNIT IV
ISSUE OF SHARES
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SHARES
Provisions of the Companies ActRegistration & Issue of prospectus
Minimum Subscription
Application money
Money to be deposited in a scheduled bank
Opening of subscription list
Statement in lieu of prospectus to be delivered to theregistrar
Compulsory listing of all public issues
Initial offer of securities to be in the demat form in
certain cases
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SHARES
Registration & Issue of prospectusWhere a public company offers shares &debentures to the public , a copy ofprospectus must be duly filed with theregistrar
Registration must be made on or before
the date of publication of the prospectusThe prospectus must be issued within 90days of its registration
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SHARES
Minimum SubscriptionSec.69(1) No allotment shall be made unlessthe amount stated in the prospectus asminimum subscription has been subscribed
and the sum payable has been receivedIf the minimum subscription is not raisedwithin 120 days of the issue of the
prospectus , all the money received shall berepaid within 130 days after the issue ofthe prospectus otherwise the directors ofthe company will have to repay the amount
with interest @ 6% p.a
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SHARES
Minimum SubscriptionAs per SEBI guidelines a company mustreceive a minimum of 90% subscriptionagainst the entire issue
If the company does not receive minimumsubscription within 60 days of the closure
of the issue, the company shall refund theentire amount
Any delay beyond 8 days will make thecompany liable to pay interest @ 15% p.a
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SHARES
Application moneyThe amount payable on application on each shareshall not be less than 5% of the nominal amount of
the shareMoney to be deposited in a scheduled bank
All the money received on application must bedeposited in a scheduled bank till
The certificate to commence business is obtained orThe entire amount payable on application is received bythe company in respect to minimum subscription
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SHARES
Opening of subscription listNo allotment can be made until the beginning of the5th day after the publication of the prospectus or
Some other time as may be prescribed in theprospectus
The company may keep the subscription list open for
any length of time
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SHARES
Statement in lieu of a prospectus to bedelivered to the registrarA company with a share capital which has not issued
a prospectus, shall not allot any of its shares or
debentures unless a statement in lieu of prospectushas been filed with the Registrar at least 3 daysbefore the first allotment
This is not applicable to a private company
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SHARES
Compulsory listing of all public issuesSec. 73 provides that every company intending to offershares or debentures to public by the issue of aprospectus has to make an application to one or more of
the recognised stock exchanges for permission for theshares or debentures to be dealt within the stockexchange
The prospectus must specify the name of the stockexchange
Any allotment made in pursuance of such a prospectusshall be void if any such stock exchange does not grantpermission within 10 weeks from the closing of such asubscription
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GENERAL PROVISIONS
(Allotment of shares) Allotment must be in accordance with theprovisions of the Articles
Allotment must be communicatedAllotment must be made within reasonabletime
Allotment must be absolute & unconditional
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ISSUE OF SHARES AT PAR
SEBI GUIDELINES for par value of shares
At any point of time the par shall be 1 or
multiples of 1
All the shares should be of the same par
value
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ISSUE OF SHARES AT A DISCOUNT(SEC.79)
The issue of shares at a discount must beof a class of shares already issued
At least one year should have elapsed atthe date of issue from the date ofcommencement of business by the company
The issue is authorized by a resolution inthe GM, which must state the maximumrate of discount
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ISSUE OF SHARES AT A DISCOUNT(SEC.79)
It is sanctioned by the NCLT
Shares are issued within 2 months of the
date on which the issue is sanctioned bythe NCLT or within such extended time asthe NCLT may allow
The rate of discount must not exceed10%, except with the approval of theNCLT
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ISSUE OF SHARES AT A PREMIUM(SEC.78)
Issue of shares at a price higher than theface value
Total premium amount is transferred to“Securities Premium Account”
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ISSUE OF SHARES AT A PREMIUM(SEC.78)
The securities premium may be utilizedfor the following purposes :
To issue fully paid bonus shares to membersTo write off preliminary expenses
To write off expenses or commissions paid or
discounts allowed on an issue of shares ordebentures
To provide for the premium payable onredemption of any redeemable preference
shares or debentures
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ISSUE OF SHARES AT A PREMIUM(SEC.78)
The securities premium may be utilizedfor the following purposes :
For buy –back of own securities ( 77-A )
Even when the securities are issued at a
premium for consideration other thancash, a sum equal to the amount ofpremium must be transferred to the
securities premium account
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CALLS ON SHARES
A call may be defined as a demand by thecompany, in pursuance of a resolution of
the BOD & in accordance with theregulations of the articles upon itsshareholders, to pay the whole or part of
the balance remaining unpaid on theirshares during the lifetime of thecompany.
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CALLS ON SHARES
Requisites of a Valid callResolution of the BOD
The amount & time of payment
Calls on shares of the same class to be madeon a uniform basis
Bona fide & for the benefit of the company
In accordance with the provisions of thearticles of the company – (Regulations 13-18of Table A)
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FORFEITURE OF SHARES
Compulsory termination of membership &taking away the shares from a member byway of penalty for non-payment of any
call, installment or premium on shares
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FORFEITURE OF SHARES
Essentials of Valid Forfeiture:Forfeiture for non-payment of calls
Notice precedent to forfeiture
Resolution of forfeitureBona fide
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FORFEITURE OF SHARES
Effect of Forfeiture:Defaulting shareholder ceases to be a memberof the company
He also loses the money paid by him
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FORFEITURE OF SHARES
Reissue of Forfeited Shares:A forfeited share may be sold or otherwisedisposed of on such terms as the board thinksfit
No return of allotment is required to be filedfor the reissue of forfeited shares
The title of the purchaser of forfeitedshares will not be affected by any irregularityin proceedings with reference to theforfeiture or sale of the shares
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FORFEITURE OF SHARES
Annulment of Forfeiture
At any time before the sale of forfeited
shares, the board may cancel the forfeitureon such terms as it thinks fit
This power cannot be exercised without theconsent of the forfeiting member
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SURRENDER OF SHARES
When a shareholder abandons his sharesin favour of the company it is known assurrender of shares
Articles may provide for the acceptanceof a surrender of shares undercircumstances which would justify
forfeiture
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SURRENDER OF SHARES
Director’s powers to accept surrender ofshares
A valid call & default must exist
Surrender should not be used as a device torelieve any member from his liability
Surrender of shares is ultra vires if theshares are not liable to forfeiture
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SURRENDER OF SHARES
Effect
Member ceases to be the member of the companyHe remains liable as a contributory as a pastmember of the company, if the company is woundup within 12 months of his surrendering of shares
Partly paid up shares which are surrendered canbe reissued in the same manner as forfeitedshares
Where the surrender of shares is illegal, theshareholder is justified in applying to have theregister of members rectified by placing his namethereon
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TRANSFER OF SHARES
Section 82 provides that the shares ofthe member in a company shall be amovable property, transferable in themanner provided by the Articles of thecompany
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TRANSFER OF SHARES
PROCEDUREInstrument of transfer to be delivered to thecompany
Instrument of transfer to be in theprescribed form
Transfer by legal representative
Notice to transferee
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TRANSMISSION OF SHARES
When shares pass by operation of law
from one person to another, it is known astransmission of shares
This happens when a member dies,becomes insolvent or goes insane
In all such cases the legal representativeor the Official Assignee or Receiver orAdministrator appointed by the court,
shall be entitled to the shares
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TRANSMISSION OF SHARES
Regulation 25-28 of Table AOn the death of a member, the survivor,where the member was a joint holder, shallbe the only person recognized by the company
as having any title to his interest in sharesA person becoming entitled to a share on adeath or insolvency of a member, onproduction of a satisfactory proof as to his
title, may elect eitherTo register himself as the holder of shares or
To transfer the shares as the original membercould have done
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TRANSMISSION OF SHARES
Regulation 25-28 of Table AIf a person concerned elects to become amember, he shall send a written & signednotice to the company notifying his election.
If he elects to transfer, he shall notify theelection by executing a transfer
A person becoming entitled to a share ontransmission shall have the same right as to
dividend & other advantages & privileges, asif he were the original holder except
Before registration as a member, he shall notexercise any right as member at the meeting of
the company
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METHODS OF RAISING SHARECAPITAL
METHODS
IPO
PrivatePlacementof Shares
Preferential Allotment
FPO
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ISSUES
PUBLICISSUE
BONUSISSUE
RIGHTISSUE
PRIVATEPLACEMENT
IPO FPO
PREFERENTIAL ALLOTMENT
QUALIFIEDINSTITUTIONAL
PLACEMENTFRESHISSUE
OFFERFOR SALE
FRESHISSUE
OFFERFOR SALE
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INITIAL PUBLIC OFFERING
Refers to the selling of shares by a privatecompany to the public for the first time.
Initial Public Offering is a source of fundsraised from the primary market.
All subsequent public offerings are known as
Follow-on Public Offerings or SecondaryMarket Offerings.
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In the primary market, securities are offered to public for subscriptionfor the purpose of raising capital or fund. The primary market providesthe channel for sale of new securities. Primary market providesopportunity to issuers of securities; Government as well as corporate, to
raise resources to meet their requirements of investment and/ordischarge some obligation. They may issue the securities at face value,or at a discount/premium and these securities may take a variety offorms such as equity, debt etc. They may issue the securities in domesticmarket and/or international market.
Secondary market is an equity trading venue in which alreadyexisting/pre-issued securities are traded among investors. Secondarymarket could be either auction or dealer market. While stock exchange isthe part of an auction market, Over-the-Counter (OTC) is a part of thedealer market.
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IPO
Initial public offer (IPO): When an unlistedcompany makes either a fresh issue of securities
or offers its existing securities for sale or both
for the first time to the public, it is called an
IPO. This paves way for listing and trading ofthe issuer’s securities in the Stock Exchanges
Further public offer (FPO) or Follow on offer:
When an already listed company makes either a
fresh issue of securities to the public or an offer
for sale to the public , it is called a FPO.
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ISSUE
Rights issue (RI): When an issue of securities ismade by an issuer to its shareholders existing as
on a particular date fixed by the issuer (i.e.
record date), it is called as rights issue. The
rights are offered in a particular ratio to thenumber of securities held as on the record date.
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ISSUE
Bonus issue: When an issuer makes an issueof securities to its existing shareholders as on a
record date, without any consideration from
them, it is called a bonus issue. The shares are
issued out of the Company’s free reserve orshare premium account in a particular ratio to
the number of securities held on a record date.
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ISSUE
Private placement: When an issuer makes an
issue of securities to a selected group of
persons not exceeding 49, and which is neither
a rights issue nor a public issue, it is called aprivate placement. Private placement of shares
or convertible securities by listed issuer can be
of two types:
(i) Preferential allotment
(ii) Qualified Institutional Placements
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ISSUE
(i) Preferential allotment: When a listed issuer
issues shares or convertible securities, to a
select group of persons in terms of provisions of
SEBI (DIP)guidelines, it is called a preferential
allotment. The issuer is required to comply with
various provisions which inter‐alia include
pricing, disclosures in the notice, lock‐
in etc, inaddition to the requirements specified in the
Companies Act.
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ISSUE
(ii) Qualified institutions placement (QIP):
When a listed issuer issues equity shares or
securities convertible in to equity shares to
Qualified Institutional Buyers only in terms ofprovisions of SEBI (DIP) guidelines, it is called a
QIP.
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ADVANTAGES OF PUBLIC ISSUE
Money non-refundable except in the case ofwinding up or buy back of shares
No financial burden i.e. no fixed rate of interestpayable. However, in order to service the equity,dividend may be paid.
Enhances shareholder's value if the companyperforms well
Greater Transferability
Trading & Listing of securities at stock
exchanges Better Liquidity of securities
Helps building reputation of promoters,company & its products / services, provided the
company performs well
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Eligibility norms for making these issues
SEBI has laid down eligibility norms for entities accessing the primary marketthrough public issues. There is no eligibility norm for a listed companymaking a rights issue as it is an offer made to the existing shareholders whoare expected to know their company. There are no eligibility norms for alisted company making a preferential issue.However for Qualified Institutions’ placement (QIP), only those companies
whose shares are listed in NSE or BSE and those who are having aminimum public float as required in terms of the Listing agreement, areeligible.The main entry norms for companies making a public issue (IPO or FPO)are summarized as under:
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Entry Norm I (EN I): The company shall meet the followingrequirements:(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.(b) Distributable profits in atleast three years
(c) Net worth of at least Rs. 1 crores in three years(d) If change in name, atleast 50% revenue for preceding 1 year shouldbe from the new activity.(e) The issue size does not exceed 5 times the pre- issue net worthTo provide sufficient flexibility and also to ensure that genuinecompanies do not suffer on account of rigidity of the parameters, SEBI
has provided two other alternative routes to company not satisfying anyof the above conditions, for accessing the primary Market, as under:
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Entry Norm II (EN II):(a) Issue shall be through book building route, with at least 50% tobe mandatory allotted to the Qualified Institutional Buyers (QIBs).
(b) The minimum post-issue face value capital shall be Rs. 10 croreor there shall be a compulsory market-making for at least 2 years
OREntry Norm III (EN III):(a) The “project” is appraised and participated to the extent of 15%
by FIs/Scheduled Commercial Banks of which at least 10% comesfrom the appraiser(s).(b) The minimum post-issue face value capital shall be Rs. 10 croreor there shall be a compulsory market-making for at least 2 years.In addition to satisfying the aforesaid eligibility norms, the companyshall also satisfy the criteria of having at least 1000 prospective
allottees in its issue
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Eligibility norms for making an IPO
Option AIt has Net Tangible Assets
Rs. 3
crores in each of the 3
preceding of which a
maximum of 50% can beheld as monetary assets.
If it has more than 50%
of its net tangible assets
in monetary assets, thenit must have made a firm
commitment to deploy
such monetary assets in
its business or in a
project.
Option B(if not A ) The Offer must only be
made by way of Book
Building
Further, at least 50% of
the Offering must be allotted to
Qualified Institutional
Buyers (QIBs., failing
which the full
subscription money mustbe refunded.
Or
The Project is appraised
by FIs/
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Eligibility norms for making an IPO
Option A
It has a minimum net
worth Rs. 1 crore in
each of the 3
preceding full years
of 12 months each
It has a track record
of distributable profits for 3 out of
immediately
preceding 5 years.
Option B(if not A )
Scheduled Banks and atleast 10%
participation comes from
the Appraiser and a
further minimum 5% fromother FIs/ Scheduled
Banks. A further 10% must
be allotted to QIBs. If these
conditions are not met,
then the full subscriptionmoney must be refunded
and The minimum post-
issue face value of the
capital is Rs. 10 crores.
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Option A
The proposed issue + all
other issues made in the
same financial year =
5times the pre-issue net
worth as per the latest
audited balance sheet of the
last financial year.
In case of a name change in
the last one year, at least
50% of the revenue of the
last one full year is from the
activity suggested by thename.
Option B(if not A )
There is a compulsory
market-making for 2years from date of listing.
The minimum buy and
sell quotes must be for
300 shares and the
differencebetween sell and buy
quotes must not exceed
10%.
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Option A
The Offer can be by
way of a Book Building or by way
of a Fixed Price
Offer The minimum
number of
prospective allottees
must be 1,000.
Option B(if not A )
Further, the market
maker must keep atleast 5% of the issue
size as
inventory.
The minimum numberof prospective
allottees must be
1,000.
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Applicable Laws
A company is required to comply with the following laws in connection with a public issue:-
Provisions of Companies Act, 1956 Securities Contracts (Regulations) Act, 1956
SEBI rules & regulations
Compliance of Listing Agreement with the
concerned stock exchanges after the listing ofsecurities.
RBI regulations in case of foreign/NRI equity participation.
Agencies in ol ed in a P blic
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Agencies involved in a PublicIssue
Management of a Public Issue involves the participationof ……….
Managers to the Issue
Underwriters
Brokers
Registrars to the issue
Solicitors
Printers
Publicity and advertising agents
Auditors Compliance officer
Depositories
Statutory agencies (ROC,SEBI,RBI AND STOCKEXCHANGES)
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Documents required
Offer document
Draft Offer document
Red Herring Prospectus
Abridged Prospectus
Letter of offer
Placement Document
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Offer Document
• „Offer document‟ is a document which contains allthe relevant information about the company,promoters, projects, financial details, objects of
raising the money, terms of the issue etc and is usedfor inviting subscription to the issue being made bythe issuer.
• „Offer Document‟ is called “Prospectus” in case of apublic issue or offer for sale and “Letter of Offer” in case of a rights issue.
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Draft Offer Document
Draft offer document means the offer document in draft stage. The draftoffer documents are filed with SEBI, atleast 21 days prior to the filing ofthe Offer Document with ROC. So its an offer document filed with SEBIfor specifying changes, if any, in it, before it is filed with the Registrar ofcompanies (ROCs). SEBI may specifies changes, if any, in the draft Offer
Document and the issuer or the Lead Merchant banker shall carry outsuch changes in the draft offer document before filing the OfferDocument with ROC. The Draft Offer document is available on the SEBIwebsite for public comments for a period of 21 days from the filing of theDraft Offer Document with SEBI.Draft offer document is made available in public domain including SEBI
website, for enabling public to give comments, if any, on the draft offerdocument.
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Red Herring ProspectusRed herring prospectus is an offer document used in case of a book built
public issue. It contains all the relevant details except that of price or number of
shares being offered. It is filed with ROC before the issue opens .Red Herring
Prospectus is a prospectus which does not have details of eitherprice or number of shares being offered or the amount of issue.
This means that in case price is not disclosed, the number ofshares and the upper and lower price bands are disclosed. On theother hand, an issuer can state the issue size and the number ofshares are determined later. In the case of book-built issues, it isa process of price discovery and the price cannot be determined
until the bidding process is completed. Hence, such details are notshown in the Red Herring prospectus filed with ROC in terms ofthe provisions of the Companies Act. Only on completion of thebidding process, the details of the final price are included in theoffer document.
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Abridged Prospectus
Abridged prospectus is an abridged version of offer
document in public issue and is issued along with the
application form of a public issue. It contains all thesalient features of a prospectus.
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Placement Document
Placement document is an offer document for the
purpose of Qualified Institutional Placement and contains
all the relevant and material disclosures.
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Price of an issue
SEBI does not play any role in price fixation.
There are two types of issues :
One where company and LM fix a price (called fixed price ) and
Other, where the company and LM stipulate a floor price or a price band and leave it to
market forces to determine the final price(price discovery through book building process ).
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Book Building
It is a process of price discovery .
The red herring prospectus does not contain a price.
It contains either the floor price of the securitiesoffered through it or a price band along with therange within which the bids can move.
Price band -- The spread between the floor and thecap of the price band shall not be more than 20%.
In other words, it means that the cap should notbe more than 120% of the floor price.
Vetting by SEBI/Stock
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Vetting by SEBI/Stock
Exchanges
A company cannot come out with publicissue unless draft prospectus is filed withSEBI.
A company cannot file prospectus directlywith SEBI. It has to be filed through amerchant banker.
SEBI on receiving the same, scrutinizes itand may suggest changes within 21 days ofreceipt of prospectus.
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Vetting by SEBI/Stock
Exchanges
If the issue size is upto Rs. 20 crores then themerchant bankers are required to file
prospectus with the regional office of SEBI
If the issue size is more than Rs. 20 crores,merchant bankers are required to file
prospectus at SEBI, Mumbai office.
Prospectus is also required to be filed with theconcerned stock exchanges along with the
application for listing its securities.
Classes of Investors
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Classes of Investors
According to the book building process, threeclasses of investors can bid for the shares:
Qualified Institutional Buyers: QIBs include
mutual funds and Foreign InstitutionalInvestors. At least 50% of the shares arereserved for this category.
Retail investors: Anyone who bids for shares
upto Rs 1,00,000 is a retail investor. At least35% is reserved for this category.
The balance bids are offered to high net worthindividuals and employees of the company.
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Procedure for the Public Issue
Pre-Issue Obligations (i.e. before the opening of issue) Board Resolution for approving the draft
prospectus and related resolutions
Filing of form 23 with ROC for passing specialresolution for issuing shares as above.
Appointment of intermediaries and entering intoMOU with them
Due diligence by a merchant banker
Submission of all required papers/documents with
merchant bankers.
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Procedure for the Public Issue
Preparation of draft prospectus in
consultation with the merchant banker and
submitting the same with SEBI along with
the fees & other requirements andsubmitting the same with stock exchanges
as per guidelines.
Receipt of queries from SEBI / stock
exchanges, if any and make changes in
prospectus, if required.
P d f h P bli I
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Procedure for the Public Issue
Reply to SEBI /stock exchanges inconnection with changes in prospectus.
Obtaining in-principle approval from stockexchanges
File final prospectus with SEBI / stockexchanges / ROC
Statutory Advertisements
Submission of 1% Security Deposit with the
Regional Stock Exchange. Depositing Promoter's Contribution in the
issue in a separate bank account.
Procedure for the Public Issue
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Procedure for the Public Issue
Collection of Application forms and processing thesame with the Registrar & Share Transfer Agent inconsultation with the merchant banker.
Separate account to be opened for the applicationsreceived from public
Submitting 3-day post issue monitoring report withSEBI by merchant banker.
Basis of allotment in consultation with theregional stock exchange.
Post Issue Advertisement Despatch of share certificates / refund orders
Procedure for the Public Issue
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Procedure for the Public Issue
Entering into an listing agreement Obtaining permission from Stock Exchanges for listing & trading of securities
Commencement of trading of securities
78-day post issue monitoring report to besubmitted by merchant banker with SEBI.
Redressal of Investors Grievances
Application to SEBI/Stock Exchange for
refund of security deposit
Employee Stock Option
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Employee Stock Option
An option given to whole time directors,officers of employees of the company
To purchase the shares of the company
at a future date at a predetermined price.
Employee Stock Option
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Employee Stock Option
Employee means:-
1. A permanent employee of the company
2. A director of the company
3. An employee of a subsidiary or a holdingcompany
Important Terms
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Important Terms
Vesting : Vesting means the process by which the employee
gets the right to apply for and be issued shares of the
company under the options granted to him. Till the vesting takes place, the employee does not
have a right to apply for the shares.
Upon vesting, the employee gets an unfettered rightto apply for the issue of shares upon fulfilment of
the conditions
Important Terms
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Important Terms
Act of exercise :
The act of exercise implies an application beingmade by the employee to the company to
have the options vested in him issued as sharesupon payment of the option price.
Exercise can take place as specified after
vesting.
Employee Stock Option
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Employee Stock Option
Conditions :
The Company should constitute acompensation committee for the
administration of ESOP. A special resolution has to be passed to
get the approval of the shareholders.
There is no restriction on the no of sharesissued to a single member
Employee Stock Option
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Employee Stock Option Conditions :
The securities offered are subject to alock in period
A minimum period of one year should be
there between the grant of options andits vesting
There should be a maximum period ofeight years between the grant of optionsand vesting.
Employee options must be exercisedwithin a maximum period of five years
from the date of vesting
Employee Stock Option
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Employee Stock Option
Conditions : Option granted to employee shall not be
transferable to any person
Options cannot be pledged,hypothecated or mortgaged
On the death of the employee option willvest with the legal heir.
The Directors report shall contain thedetails of options granted, optionsvested and options exercised.
BONUS SHARES
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BONUS SHARES
Conditions for Issue of Bonus shares
AOA must permit such issue
Sufficient undistributed profit must be present A resolution for capitalizing the profits must
have been passed by the BOD
The resolution of the BOD must be approvedby the shareholders in the general meeting
SEBI guidelines in this regard must be
complied with
BONUS SHARES
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BONUS SHARES
Conditions for Issue of Bonus shares
No company shall, pending conversion ofFCDs/PCDs, issue any bonus shares, unlesssimilar benefit is extended to the holders ofsuch FCDs/PCDs through reservation ofshares in proportion to such convertible part
of FCDs/PCDs.
BONUS SHARES
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BONUS SHARES
Conditions for Issue of Bonus shares
The company must file with the Registrar
a return stating the number and nominal amountof bonus shares issued together with
the names, addresses & occupations of the allottees &
a copy of the resolution authorizing the issue ofsuch shares
This must be done within 30 days of the
allotment of such shares
BONUS SHARES
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BONUS SHARES
SEBI guidelines
The bonus issue is made out of the freereserves built out of the genuine profits orshares premium a/c
The declaration of bonus issue , in lieu ofdividend, is not made
The bonus issue is not made unless the partlypaid shares, if any existing, are made fullypaid up
BONUS SHARES
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BONUS SHARES
SEBI guidelines The company -----
Has not defaulted in payment of interest or
principal in respect of fixed deposits & interest onexisting debentures or principal on redemptionthereof &
Has not defaulted in respect of the payment of
statutory dues like---provident fund etc.
BONUS SHARES
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BONUS SHARES
SEBI guidelines
A company announces its bonus shares afterthe approval of BOD must implement theproposal within 6 months from the date of
approval & shall not have the option ofchanging the decision
There should be the provision in AOA of the
company for capitalisation of reserves & ,ifnot, the company shall pass a resolution ingeneral meeting making provision in AOA
BONUS SHARES
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BONUS SHARES
SEBI guidelines
Consequent to the issue of bonus shares, if thesubscribed & paid up capital exceed the authorisedshare capital, a resolution shall be passed by the
company at its general body meeting for increasingthe authorised capital
A company while issuing bonus shares, forward toSEBI a certificate duly signed by the issuer company
& duly countersigned by its statutory auditor by aCS in practise to the effect that conditions for theissue of bonus shares have been duly complied with
RIGHT ISSUE
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RIGHT ISSUE
Existing shareholders have the privilege to buy aspecified number of new shares from the firm at a
specified price within a specified time.
A rights issue is offered to all existingshareholders individually and may be rejected,
accepted in full or accepted in part.
Rights are often transferable, allowing the holderto sell them in the open market.
RIGHT ISSUE
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RIGHT ISSUE
(Notice) The company must give notice to each of the
equity shareholders, giving him the option to take
the shares against payment of the specified money
The notice must mention the number of shares the
shareholder has the option to take
Minimum of 14 days notice must be given forexercise of his option
RIGHT ISSUE
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RIGHT ISSUE
(Notice) Unless the Article provides otherwise, the notice
must also state that the shareholder shall have the
right to renounce the offer in whole or in part, infavour of some other person
If the shareholder does not inform the company of
his decision within a stipulated time, he shall bedeemed to have declined the offer
RIGHT ISSUE
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RIGHT ISSUE
(Notice) However, where some shareholders of a company
were not given notice to apply for allotment of
additional shares, subsequent allotment of sharesto other shareholders at a meeting would be
invalid
RIGHT ISSUE
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(SEBI Guidelines)
Applicability
Listed companies
Where offer exceeds 50 lacs
Withdrawal of a rights issue after announcement
Such company shall not be permitted to get any of its
securities listed for a minimum period of 12 months
Underwriting
Appointment of Registrar
Appointment of Merchant Banker
RIGHT ISSUE
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RIGHT ISSUE(SEBI Guidelines)
Partly paid up shares to be made fully paid
Disclosure in letter of offer
Agreement with depository
Filing of letter of offer with Regional Stock
exchange
Closure of rights issue
Open for 30 days but not more than 60 days
RIGHT ISSUE
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RIGHT ISSUE(SEBI Guidelines)
Minimum subscription
90 % minimum subscription
If not received then entire amount collected should berefunded within 42 days from the date of closure of the
issue
In case of delay in refund by more than 8 days, interest
has to be paid @ 15% p.a
No reservations in right issue
Promoter’s contribution and lock in period
RIGHT ISSUE
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(SEBI Guidelines)
Rights of FCDs & PCDs holders
Restriction on further capital issue
Oversubscription not to be retained Issue to be made fully paid up within 12 months
Utilisation of funds in case of rights issue
Compliance report 3 day post issue monitoring report
50th day post issue monitoring report
RIGHT ISSUE
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(SEBI Guidelines)
Additional facility for applying
Advertisement must be published at least 7 days before
the date of opening of the issue. It must contain the
following details :
Centers where the shareholders may obtain duplicate
copy of application forms in case they do not receive
the original app form Shareholders may make application to subscribe to the
rights on plain paper (if above condition is not
satisfied)
RIGHT ISSUE
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(SEBI Guidelines)
Additional facility for applying
The advertisement must also contain a format to enable
the shareholders to make the application on a plain
paper like name , address, ratio of right issue, issue price, number of shares held etc.
The applications can be directly send through
registered post along with the application money
Shareholders making the application otherwise than on
a standard form shall not be entitled to renounce their
rights and shall not utilise the standard form for any
purpose even if it is received subsequently
RIGHT ISSUE
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(Exceptions)
In the following circumstances the company need
not give the right issue to the existing
shareholders:
In case of the allotment of shares within 2 years of theformation of a company or within 1 year after the first
allotment , whichever event occurs earlier
Where a special resolution is passed in the generalmeeting providing that the shares need not be offered
to the existing shareholders
Contd….
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Where no such special resolution is passed but the
votes cast in favour of the proposal contained in
the resolution moved in the GM exceed the votes,
if any, cast against the proposal & the CentralGovt. is satisfied, on an application made by the
BOD in this behalf, that the proposal is most
beneficial for the company
Contd….
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A private company need not offer its further issue
first to existing shareholders
In case of issue of shares against conversion of
loans or debentures
Sec 81 does not come into play where the
company proposes to make allotment of shares to
its creditors