Points Initial Public Offer Further Public Offer

When an unlisted company makes either a When an already listed company makes
fresh issue of securities or offers its existing
1. Meaning
securities for sale or both for the first time to
the public, it is called an IPO.
2. Type of issuer It is issued by an unlisted Public Company
company
It is usually issued by an existing company
3. When issued which wants to raise capital from the public
for the first time.
IPO proceeds FPO. IPO is the first time sale of
4. Order of issue
shares to the public.
Before issue of IPO company gets listed on the
5. Listing
stock exchange
It is very risky for the investor as he cannot
6. Risk predict the company’s performance.
7. Pricing The prices of IPOs are fixed or having a price
range.
8. Types Types of IPO
a) Fixed Price Offering: Issue price of shares
is pre-determined before issue the IPO
b) Book Building Offering: Issue price of
shares is determined after receiving the
bids.
either a fresh issue of securities to the public
or an offer for sale to the public, it is called a
Further/Follow on Public Offer (FPO).
It is issued by a listed Public Company
It is usually issued by a Listed Public Company
when it wants to raise additional capital from
the public.
FPO is always done after IPO. It is the second
or subsequent sales of shares to the public.
Company making an FPO is already a listed
company.
It is less risky for the investor as he has an
idea of the company’s past performance and
can judge its future performance.
The prices of FPO are variable and
determined by the market itself.
Types of FPO
a) Dilutive Offering: new offer of shares
actually increases the number of
outstanding shares of the company.
b) Non-dilutive Offering: Directors or the
bigger shareholders who sell their shares
and offer them to the public.

Points Fixed Price Issue Method Book Building Method

1. Meaning Under this method, the issue price of shares Under this method, issue price of shares and
is pre-determined before issue and number of shares are determined by a
mentioned in the prospectus, the investors bidding process. The investors are given a
have to purchase shares at the price only. price band and are asked to bid at price
within the band. This way company arrives at
a price at which it will sell its shares.
2. Price of Shares The exact issue price of shares is known in The exact issue price of shares is not known
advance and mentioned in the prospectus. in advance. In prospectus company provide
price band (min price and max price).
3. Prospectus For this method company issue a prospectus For this method company issue a Red Herring
and it contains the details information about Prospectus and it contains only the price
Issue, such as number of shares offered, band and total size of issue.
issue price of shares etc.
4. Determination Demand for the shares can be known based Demand for the shares can be known every
of Demand on the subscriptions received. And this is only day based on the bids received during the
after closure of issue. period for which the bidding is open for
public.
5. Payment of Application money or entire money has to be Only application money has to be paid at the
Application paid by the investor at the time of submitting time of bidding. Money will be collected only
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 Money his application for shares.
It can be used for all types of issues i.e. Public It is used in Public issues i.e. IPO and FPO.
6. When Used
Issue, Right Issue, ESOS etc.
7. Issue Value Company can issue shares at par or premium. Company can issue shares at premium.
8. Preference This method has gradually been becoming
less opted in view of the limitations
associated with it.
9. Reservations 50% of the allocations are reserved for
investments below 2 lakhs, and the rest for
high amount investors.
10. Effectiveness The chances of fixing a fair price for the
company’s shares are very rare. At times, it
may lead to undervaluing of the issuing
company as the price of the company’s
shares at IPO could be lower than a fair
market price driven by the demand.
Points Right Shares
1. Meaning When a company raise capital by issue of
further shares, the present equity
shareholders are given right to apply for new
shares in proportion to shares already held
by them such shares is called ‘Right Shares’.
2. Payment Subscribers have to pay for the Right Shares.
Company only gives them a right to buy these
shares.
3. Partly/Fully Right shares are fully/partly paid up.
paid up Shares Shareholders have to pay for these shares as
Application money, Allotment, Call money
etc. till the full money on shares is paid up.
4. Minimum Company has to obtain minimum
Subscription subscription (90% of issued). If not collect
cancel the issue and refund the application
money.
5. Right to The shareholders can fully/ partly renounce
Renounce his shares to another person.
Right issue is done by a company when it
wants to raise fresh capital but wants to give
6. Purpose of
a chance to their existing members to
Issue
increase their shareholding.
Right shares results in cash receipt for the
7. Cash Receipt
company
For the Right shares company issue Letter of For the Bonus shares company issue Letter of
8. Letter
Offer to equity shareholders. Bonus Shares to equity shareholders.
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after the issue price has been fixed.
This method has become very popular due to
flexibility to the pricing of IPO’s.
50% of allocations are reserved for the QIBs.
35% for small investors and the rest to other
categories of investors.
Book building method is seen as better way
of pricing the shares as the demand for the
issuer’s shares in the market is the driving
force behind the prospective shareholder’s
bids. The chances of determining the fair
price are very high.
Bonus Shares
Bonus shares refer to the shares issued by
the company free of cost to the existing
shareholders in the proportion of their
holdings, out of accumulated profits and
reserves.
Bonus shares are issued free of cost to the
shareholders.
Bonus shares are always fully paid up shares.
So no money has to be paid by shareholders
to the company.
There is no minimum subscription (90% of
issue) to be collected by bonus shares,
because these are issued free of cost by the
company.
Bonus shares cannot renounce to another
person by shareholders, its only hold by the
shareholders.
When company wants to convert reserve
fund into capital fund and give the reward its
existing equity shareholders for sacrifice
dividend that time company issue Bonus
shares.
Bonus shares do not result in cash receipt.
 Points Transfer of Shares Transmission of Shares
Transfer the ownership of shares by selling or The passing the ownership of shares by
gift from the shareholder to another, it is operation of law of inheritance upon
1. Meaning known as Transfer of shares. happening of death, insolvency or lunacy of a
shareholder to his legal representative, it is
known as Transmission of shares.
It is done when the member wants to sell his It is done when the member dies or becomes
2. When done
shares or give his shares as gift. insolvent or insane (unsound mind)
3. Nature of It is a voluntary action taken by the member/ It is an involuntary/ compulsory action due to
Action shareholder. operation of law.
In transfer of shares, two parties are In the transmission of shares, only one party
4. Parties involved: involved: nominee of the member in case of
involved i) Transferor: Member of the company death of the member or Legal Representative
ii) Transferee: Buyer of the shares of the member.
Transfer of shares requires Instrument of Transmission of shares not required
5. Instrument of
Transfer. It is a contract between the Instrument of Transfer.
Transfer
transferor and transferee.
In the transfer of shares, the initiative takes In the transmission of shares, the legal
6. Initiated by by transferor. representative/ official receiver take
initiative.
When shares are transferred that time In the transmission of shares no
7. Consideration
consideration is money or gift. consideration is involved.
The liability of the transferor ends after the Original liability of the member continues in
8. Liability
shares are transferred. case of transmission of shares.
Stamp duty as per the market value of shares There is no stamp duty payable in the case of
has to be paid on transfer of shares in transmission of shares.
9. Stamp Duty
physical form but in Demat form, no stamp
duty is payable.
10. Refusal The company can refuse the transfer of The Company cannot refuse transmission of
shares due to incomplete application or in shares because it is the decision of court.
the interest of company.
11. Document In the transfer of shares required two In the Transmission of shares required the
Required documents following documents
i. Instrument of Transfer i. Death Certificate
ii. Share Certificate ii. Copy of Will
iii. Succession certificate
iv. Copy of Judicial Order
v. Share Certificate