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What is SEBI?

Securities and Exchange Board of India (SEBI) is an apex body for overall development and regulation of the securities market. It was set up on April 12,1988. To start with, SEBI was set up as a non-statutory body. Later on it became a statutory body under the Securities Exchange Board of India Act, 1992. The Act entrusted SEBI with comprehensive powers over practically all the aspects of capital market operations. Role Functions of SEBI The role or functions of SEBI are discussed below.  To protect the interests of investors through proper education and guidance as regards their investment in securities. For this, SEBI has made rules and regulation to be followed by the financial intermediaries such as brokers, etc. SEBI looks after the complaints received from investors for fair settlement. It also issues booklets for the guidance and protection of small investors. To regulate and control the business on stock exchanges and other security markets. For this, SEBI keeps supervision on brokers. Registration of brokers and sub-brokers is made compulsory and they are expected to follow certain rules and regulations. Effective control is also maintained by SEBI on the working of stock exchanges. To make registration and to regulate the functioning of intermediaries such as stock brokers, subbrokers, share transfer agents, merchant bankers and other intermediaries operating on the securities market. In addition, to provide suitable training to intermediaries. This function is useful for healthy atmosphere on the stock exchange and for the protection of small investors. To register and regulate the working of mutual funds including UTI (Unit Trust of India). SEBI has made rules and regulations to be followed by mutual funds. The purpose is to maintain effective supervision on their operations & avoid their unfair and anti-investor activities. To promote self-regulatory organization of intermediaries. SEBI is given wide statutory powers. However, self-regulation is better than external regulation. Here, the function of SEBI is to encourage intermediaries to form their professional associations and control undesirable activities of their members. SEBI can also use its powers when required for protection of small investors. To regulate mergers, takeovers and acquisitions of companies in order to protect the interest of investors. For this, SEBI has issued suitable guidelines so that such mergers and takeovers will not be at the cost of small investors. To prohibit fraudulent and unfair practices of intermediaries operating on securities markets. SEBI is not for interfering in the normal working of these intermediaries. Its function is to regulate and control their objectional practices which may harm the investors and healthy growth of capital market. To issue guidelines to companies regarding capital issues. Separate guidelines are prepared for first public issue of new companies, for public issue by existing listed companies and for first public issue by existing private companies. SEBI is expected to conduct research and publish information useful to all market players (i.e. all buyers and sellers). To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-regulating organizations and to take suitable remedial measures wherever necessary. This function is undertaken for orderly working of stock exchanges & intermediaries. To restrict insider trading activity through suitable measures. This function is useful for avoiding undesirable activities of brokers and securities scams.

In a layman’s language. A merchant bank also provides advisory on corporate matters to the firms they lend to. cash. age and ability to undertake risks. "the term merchant banking is generally understood to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies. budget. This type of bank does not have retail offices where a customer can go and open a savings or checking account.S. Need for Portfolio Management Portfolio management presents the best investment plan to the individuals as per their income. . For very large stock offerings. long-term company loans. It then files all the paperwork required with the various market authorities. merchant banks' original purpose was to facilitate and/or finance production and trade of commodities. A large company that wishes to raise money from investors through the stock market can hire this type of bank to implement and underwrite the process. shares.Lead Merchant Bankers A merchant bank is a financial institution that provides capital to companies in the form of share ownership instead of loans. according to the U. Today. though this may be a joint effort with the company and managed by the merchant bank. The most familiar role of the merchant bank is stock underwriting. the art of managing an individual’s investment is called as portfolio management. and the timing of the release. By limiting their scope to the needs of large companies. as well as large financial institutions. these banks can focus their knowledge and be of specific use to such clients. Portfolio management refers to managing an individual’s investments in the form of bonds. A merchant bank deals with the commercial banking needs of international finance. Some specialize in a single area. The bank determines the number of stocks to be issued. such as underwriting or international finance. and stock underwriting. or in the business of wholesale banking because these banks tend to deal primarily with other banks of the same kind. Federal Deposit Insurance Corporation (acronym FDIC). the price at which the stock will be issued. hence the name "merchant". several banks may work together. with one being the lead underwriter. Historically. What is Portfolio Management ? The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management. In the United Kingdom. mutual funds etc so that he earns the maximum profits within the stipulated time frame. and it is also frequently responsible for marketing the new stock. Few banks today restrict their activities to such a narrow scope. It is sometimes said to be awholesale bank. the term "merchant bank" refers to an investment bank. Both commercial banks and investment banks may engage in merchant banking activities. Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers.

Roles and Responsibilities of a Portfolio Manager A portfolio manager is one who helps an individual invest in the best available investment plans for guaranteed returns in the future. In discretionary portfolio management. the portfolio manager has full rights to take decisions on his client’s behalf. Portfolio management enables the portfolio managers to provide customized investment solutions to clients as per their needs and requirements. . documentation. Unavoidable circumstances might arise anytime and one needs to have sufficient funds to overcome the same. the portfolio manager deals with a fixed portfolio designed to match the current market scenario. Discretionary Portfolio management services: In Discretionary portfolio management services.Portfolio management minimizes the risks involved in investing and also increases the chance of making profits. the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals. age as well as ability to undertake risks. in an active portfolio management service. Non-Discretionary Portfolio management services: In non discretionary portfolio management services. A portfolio manager counsels the clients and advises him the best possible investment plan which would guarantee maximum returns to the individual. paper work. the portfolio manager can merely advise the client what is good and bad for him but the client reserves full right to take his own decisions. Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved. A portfolio manager must understand the client’s financial goals and objectives and offer a tailor made investment solution to him. filing and so on. No two clients can have the same financial needs. Let us go through some roles and responsibilities of a Portfolio manager: A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income. Who is a Portfolio Manager ? An individual who understands the client’s financial needs and designs a suitable investment plan as per his income and risk taking abilities is called a portfolio manager. Types of Portfolio Management Portfolio Management is further of the following types: Active Portfolio Management: As the name suggests. Passive Portfolio Management: In a passive portfolio management. One must keep aside some amount of his/her income for tough times. The individual issues money to the portfolio manager who in turn takes care of all his investment needs. an individual authorizes a portfolio manager to take care of his financial needs on his behalf. A portfolio manager is one who invests on behalf of the client. Investment is essential for every earning individual.

Know an individual’s earnings and his capacity to invest. It is his money and he has all the rights to select the best plan for himself. A portfolio manager must be transparent with individuals. . A portfolio manager ought to be unbiased and a thorough professional. He should be prompt enough to finalize the best financial plan for an individual and invest on his behalf. No two individuals can have the same financial needs. Unlike shares that are held as treasury stock." Issued shares include the stock that a company sells publicly in order to generate capital and the stock given to insiders as part of their compensation packages. A portfolio manager needs to be a good decision maker. You might need to meet them twice or even thrice to explain them all the investment plans. A portfolio manager plays a major role in setting financial goal of an individual. A portfolio manager must keep himself abreast with the latest changes in the financial market. A portfolio manager is responsible for designing customized investment solutions for the clients. Be honest to your client for a long term relationship. Definition of 'Issued Shares' The number of authorized shares that is sold to and held by the shareholders of a company. Suggest the best plan for your client with minimum risks involved and maximum returns. shares that have been retired are not included in this figure. Never ignore them. Sit with your client and understand his financial needs and requirement. terms and conditions. maturity period. Remember you have the responsibility of putting their hard earned money into something which would benefit them in the long run.A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Read out the terms and conditions and never hide anything from any of your clients. risks involved and so on. Don’t always look for your commissions or money. regardless of whether they are insiders. The total number of issued shares outstanding in a company is most often shown in the annual report. Also known as "issued stock. A portfolio manager must design tailor made investment solutions for individuals which guarantee maximum returns and benefits within a stipulated time frame. Don’t ever get hyper with them. Make an individual realize why he actually needs to invest and which plan would be the best for him. institutional investors or the general public. Be patient with your clients. Make him understand the investment plans and the risks involved with each plan in a jargon free language. Communicate with your client on a regular basis. Never pressurize your client for any plan. benefits. It is essential for the portfolio manager to first analyze the background of his client. Never sign any important document on your client’s behalf. It is the portfolio manager’s duty to suggest the individual where to invest and where not to invest? Keep a check on the market fluctuations and guide the individual accordingly. The amount of issued shares can be all or part of the total amount of authorized shares of a corporation. Be accessible to your clients. It is your responsibility to guide your client and help him choose the best investment plan.

shares for employees or family members. etc (sometimes called "alphabet shares"). B shares. shares are given to family members or employees so that dividends may be paid to them. because it may be a more taxefficient means of making payments to them. but very often have different voting. such as to be able to vary the dividends paid to different shareholders. A shares. Different classes of shares. but it is increasingly common for even very small private companies to have different share classes. The share class system is infinitely flexible. capital shares Deadlock articles Changing class rights Converting shares from one class to another Introduction (You may want to refer to 'Shares . etc.Existing shares can be converted to different classes (conversion of shares). the owners of the company may want to restrict the rights attached to such shares. and the rights attached to them. Apart from ordinary shares.s and can call any class of shares by whatever name it chooses.g. should be set out in the company's articles of association. e.             Introduction Ordinary shares Non-voting shares Redeemable shares Preference shares Deferred ordinary shares Management shares Other classes of shares Voting shares.g. In other cases. This is done for different reasons. The Company Law Solutions website provides further practical advice on these areas.) Any company can create different classes of shares by setting out those classes and the rights attached to them in the company's articles. to create non-voting shares. A company can have what classes of shares it like. Most companies have only one class of shares. If a company has only one class of shares they will beordinary shares and will carry equal rights. ordinary shares. shares with extra voting rights (sometimes called "management shares"). dividend and/or capital rights.Classes of shares Company Law Solutions provides an expert service advising on different classes of shares and the procedures for creating them. The new classes can then be allotted. Different classes of shares within a company can carry identical rights. common types are preference shares. by making them non-voting. and perhaps by making it possible to take the shares back if . Sometimes it is to attract a particular investor. introduction' before reading this page. dividend shares. non-voting shares. In such cases. This may be done for various reasons. by giving him or her preference shares.

circumstances change (perhaps by making them redeemable). or to createdeadlock articles.g. e. Ordinary shares Most companies have just ordinary shares. buy them back at some future date. 'B' ordinary shares. There are no legal definitions of such classes and shares with the same name (e. if the company is wound up. while the holder of the £1 shares only gets one vote per £1. if the employee leaves the company his shares can be taken back at their nominal value. Such shares are widely used to issue to employees so that some of their remuneration can be paid as dividends. £1 ordinary shares and 10p ordinary shares. are entitled to participate equally in dividends and. Such shares rae often identified by a letter (socalled "alphabet shares"). or to distinguish between the shares so that different rules apply for share transfers. This often done with non-voting shares given to employees so that. to allow the directors to pay different dividends to the holders of the different share classes. etc. There can also be ordinary shares in the same company that are of different nominal values. like a . The same is also sometimes done for members of the main shareholders' families. e. that the shares will be redeemed five years after they are issued) or at the directors' discretion. different classes of shares with the same rights are issued to different people. but need not be. Redeemable shares These are shares issued on terms that the company will. They may also be redeemable at any time at the company's option. The following are descriptions of some typical classes of shares. 'A' ordinary shares. share in the proceeds of the company's assets after all the debts have been paid.g. or may. The main requirement. In some companies. There are statutory restrictions on the redemption of shares. which can be more tax-efficient for the company and the employee.g. If each share has one vote (regardless of its nominal value) the holder of the 10p shares will get 10 votes for every £1 paid for them. Non-voting shares Non-voting shares carry no rights to vote and usually no right to attend general meetings eitherWhat voting rights do shares have?. etc. The date may be fixed (e. The redemption price is often the same as the issue price. e. Some companies create different classes of ordinary shares.g. They carry one vote per share. preference shares) will have different rights in different companies. This is done to create some small difference between the different classes.g. This can be a way of making a clear arrangement with an outside investor.Preference shares are often non-voting. and the articles provide that the directors may vary the dividends between the different classes.

7% preference share will carry a dividend of 7p each year. The presumption is that it is cumulative. if not paid one year then accumulates to the next year) or non-cumulative. The dividend may be cumulative (i. Thereafter they will usually be fully participating.g. Such shares are often used to allow the original owners of a company to retain control after additional shares have been issued to outside investors.g. Preference shares are often redeemable Preference shares These will usually have a preferential right to a fixed amount of dividend. Deferred ordinary shares Shares on which no dividend is paid until other classes of shares have received a minimum dividend. class 'B' having all the dividend rights and class 'C' having all the capital rights. however. As a simple example. ten votes each) or by having a smaller nominal value for such shares so that there are more shares (and so more votes) per £1 invested. capital shares Sometimes three classes of shares are created with class 'A' having all the voting rights. dividend shares. 50% of the dividends and 40% of the capital. They may be given a priority on return of capital on a winding up. in which case it participates in profits beyond the fixed dividend under some formula. It is then possible for the different shareholders to have different percentages of the rights for these purposes. 50% of the dividend rights ('B' shares) and 60% of the capital rights ('C' shares). but alternatively the preference share may be participating. Other classes Any class of shares may be created. They are sometimes redeemable. being that the company may only redeem the shares out of accumulated profits or the proceeds of a fresh issue of shares (unless it makes a permissible capital. they only get their £1 back on each £1 share).e. This may be done by conferring multiple votes to each share (e. Shareholder 2 then has 60% of the votes. e. a £1. such as the following arrangements: Voting shares. Sometimes different classes are set up for particular purposes. still a dividend and payable only out of profits. . Shareholder 1 may have 40% of the voting rights ('A' shares).buy-back. Preference share are often non-voting (or non-voting except when their dividend is in arrears). The dividend is usually restricted to a fixed amount. Management shares A class of shares carrying extra voting rights so as to retain control of the company in particular hands.e. Often they will not be entitled to share in surplus capital (i. It is. expressed as a percentage of the nominal (par) value of the share.

only that they should be put in place only with proper advice. Company Law Solutions provides an expert service advising on different classes of shares and the procedures for creating them. That is not to say that such schemes should be avoided. There have been many examples over recent years where shares have been created in order to save tax without taking proper advice as to the implications of issuing such shares to employees. etc. two directors to be nominated by the holders of the A shares and two by the holders of the B shares.Deadlock articles In a company with two investors. family members. A shares and B shares. We do not give tax advice. say. changing the rights on one person's shares may well have an effect. Caution Care needs to be taken when creating different classes of shares and. by altering the articles by special resolution).g. would otherwise be vulnerable to the rights on those shares being altered by the majority (e.g. It may be done with the consent of all the shareholders affected. Full consideration of this complex area is outside the terms of this database. at least in practice on the rights of all the other shareholders. sec633: The holders of not less than 15% of the issued shares of the class (being persons who did not consent to or vote in favour of the resolution for the variation). in issuing shares generally. the articles may provide for. etc. This is known as a variation of class rights. CA 2006. Changing class rights There is some statutory protection given to the holders of a class of shares against the rights on their shares being altered. More practical advice on this area can be found on the Company Law Solutions website. Such conversions are now relatively commonplace. The safest course is to pass a resolution to which all the shareholders consent because. or a class of non-voting shares. in practice. The shares may carry the same rights but are intended to protect both A and B in certain ways. indeed. but the following is a summary of the main statutory provisions: CA 2006. A and B (perhaps a joint venture between two unrelated companies) the company may have two classes of shares. or (b)a special resolution (75% majority) is passed at a separate general meeting of the holders of that class to sanction the variation. A minority class of shares. sec630 provides that class rights may be varied only in accordance with the articles or if either: (a) the holders of three-quarters in nominal value of the issued shares of that class consent in writing to the variation. e. may apply to the court to have the variation cancelled. . Converting shares from one class to another There is no statutory procedure for converting shares from one class to another.

incorporated in or outside India or  Partnership firm and subsequently converted into a Company (not in iii. The Company subsequently formed would be considered for listing only on fulfillment of conditions stipulated by SEBI in this regard. the issuers shall be required to include. For this purpose. in the disclaimer clause of the Exchange required to put in the offer document. The applicant desirous of listing its securities should satisfy the exchange on the following:  No disciplinary action by other stock exchanges and regulatory authorities in past three years There shall be no material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant . Securities and Exchange Board of India Act 1992. In respect of the requirement of paid-up capital and market capitalisation. ** Explanation 2 For this purpose. the applicant or the promoting company shall submit annual reports of three preceding financial years to NSE and also provide a certificate to the Exchange in respect of the following:    The company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR). the securities would not be listed on the Exchange. capitalisation will be the product of the issue price and the post issue number of equity shares. clarifications. Paid up Capital The paid up equity capital of the applicant shall not be less than 10 crores * and the capitalisation of the applicant's equity shall not be less than 25 crores** * Explanation 1 For this purpose. Conditions Precedent to Listing: The Issuer shall have adhered to conditions precedent to listing as emerging from inter-alia from Securities Contracts (Regulations) Act 1956. ****Promoters mean one or more persons with minimum 3 years of experience of each of them in the same line of business and shall be holding at least 20% of the post issue equity share capital individually or severally. Atleast three years track record of either:  the applicant seeking listing. The networth of the company has not been wiped out by the accumulated losses resulting in a negative networth The company has not received any winding up petition admitted by a court. that in the event of the market capitalisation (Product of issue price and the post issue number of shares) requirement of the Exchange not being met. existence as a Company for three years) and approaches the Exchange for listing. Companies Act 1956. or  the promoters****/promoting company. guidelines issued by the appropriate authority under foregoing statutes.Qualifications for listing Initial Public Offerings (IPO) are as below: i. ii. iv. as also any circular. the post issue paid up equity capital for which listing is sought shall be taken into account. any rules and/or regulations framed under foregoing statutes.

Details of Litigation The applicant. group companies. group companies. In respect of promoters/promoting company(ies). where all or any of the directors of issuer have or has been charge-sheeted with serious crimes like murder. companies promoted by the promoters/promoting company(ies) of the applicant company. The applicant's arrangements envisaged are in place for servicing its investor. The applicant. In case of defaults in such payments the securities of the applicant company may not be listed till such time it has cleared all pending obligations relating to the payment of interest and/or principal. companies promoted by the promoters/promoting company(ies) litigation record. group companies. promoters/promoting company(ies). The applicant. The auditor's certificate shall also be obtained in this regard. companies promoted by the promoters/promoting company(ies) general approach and philosophy to the issue of investor service and protection iv. promoters/promoting company(ies). iii. rape. promoters/promoting company(ies). relevant disclosures may be insisted upon in the offer document regarding the status of criminal cases filed or nature of the investigation being undertaken with regard to alleged commission of any offence by any of its directors and its effect on the business of the company. group companies. Redressal Mechanism of Investor grievance The points of consideration are: i. companies promoted by the promoters/promoting company(ies) track record in redressal of investor grievances ii. the securities may be considered as eligible for listing if they were otherwise eligible for listing at the time of the IPO. companies promoted by the promoters/promoting company(ies) shall also be considered while evaluating a company's application for listing.   Note: a) In case a company approaches the Exchange for listing within six months of an IPO. group companies. forgery. there shall be no material regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year. Track Record of Director(s) of the Company In respect of the track record of the directors. status of litigation during the preceding three years period need to be clarified to the exchange.  Distribution of shareholding The applicant's/promoting company(ies) shareholding pattern on March 31 of last three calendar years separately showing promoters and other groups' shareholding pattern should be as per the regulatory requirements. If . promoters/promoting company(ies). the nature of litigation. company. defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant. economic offences etc.

the norms for existing listed companies may be applied and market capitalisation be computed based on the period from the IPO to the time of listing.the company approaches the Exchange for listing after six months of an IPO. .