ISSUE

MANAGEMENT
INTERMEDIARIES – MEANING?

• The new issue market activity was regulated by the

Controller of Capital Issues (CCI) under the provisions of
the Capital Issues (Control) Act, 1947
• With the abolition of the Act and the consequent abolition
of the office of the CCI in 1992
• the protection of the interest of the investors in securities
market and promotion of the development and regulation of
the market/ activity became the responsibility of the SEBI.
MERCHANT BANKER

• A merchant banker means any person who is engaged in the

business of issue management either by making
arrangement or acting as manager/consultant/advisor.
• Issue means an offer for sale/purchase of securities by
corporate/person on its/his behalf
• Now it is mandatory that all public issues should be
managed by merchant bankers.
• In case of right issue not exceeding Rs. 50 lakh, such
appointment may not be necessary.
MERCHANT BANKERS: THE
INTERMEDIARIES
Main activities of the merchant bankers are –
• Determining the composition of the capital structure,
• Drafting of prospectus and application forms,
• Compliance with procedural formalities,
• Listing of securities,
• Arrangement of underwriting
• Publicity and advertising agents,
MERCHANT BANKERS: ORGANISATIONAL
POLICIES/PROCEDURES

Registration : Merchant bankers require compulsory registration with

the SEBI to carry out their activities. Previously there were four
categories of merchant bankers, depending upon the activities.
Now, since Dec. 1997, there is only one category of registered
merchant banker and they perform all activities.
Grant of Certificate – By SEBI if following points are cleared:
• It’s a body corporate including NBFC
• Necessary Infrastructure
• At least Two qualified employees
 MERCHANT BANKERS: ORGANISATIONAL
POLICIES/PROCEDURES

• Capital Adequacy Requirement :

-Paid up capital and reserves of minimum Rs. 5 crore
• Fee: reg. fee 200,000 -for permanent reg. 900,000 every three years from
the 6th year of initial registration
• Code of Conduct :
- It means to maintain highest standards of integrity and fairness, quality of
services, due diligence and professional judgment in all his dealings with
the clients and other people, not be party
- Use professional skills in its dealings
• Restriction on Business : No merchant banker other than
bank/Fi is permitted to carry on business other than that in
securities market. (if registered with RBI*)
• Responsibilities : To sign Agreement with client, setting
out mutual rights, liabilities and obligations relating to such
issue , should not work as lead manager if he/she is
associated with issuing company and working accordingly
under the rules of SEBI.
UNDERWRITERS

• An underwriter is any entity that evaluates and assumes

another entity's risk for a fee, such as a commission,
premium or interest etc.
• Underwriters operate in many aspects of the financial
world, including the mortgage industry, insurance industry,
equity markets, and common types of debt securities.
• Registration : COMPULSORY
• It must be a corporate body
• Capital adequacy: Initial capital not less than 20 Lakhs
• Fee : initial registration 13,33,300. and 500,000 for every 3
years from the date of initial registration
• Code of conduct :*
• Agreement with clients
• General responsibilities :
• An underwriter cannot derive any direct or indirect benefit from
underwriting the issue other than by the underwriting commission.
• The maximum obligation under all underwriting agreements of an
underwriter cannot exceed twenty times his net worth.
• Underwriters have to subscribe for securities under the agreement
within 45 days of the receipt of intimation from the issuers.
PUBLIC ISSUE

• Issue of stock on a public market rather than being

privately funded by the companies own promoter(s), which
may not be enough capital for the business to start up,
produce, or continue running.
• By issuing stock publically, this allows the public to own a
part of the company.
ELIGIBILITY REQUIREMENT

• It should be satisfied by an issuer on the date of:

 Filing draft offer document with SEBI
 Registering the offer document with the ROC’s related to
IPO and FPO.
• Filing of Offer Document: In the case of a public issue of
securities, as well as any issue of security, by a listed
company through rights issue in excess of Rs. 50 lakh
• a draft prospectus should be filed with SEBI through an
eligible registered merchant banker at least 21 days prior to
filing it with ROC.
 CONDITIONS FOR IPO’S

• Net Tangible Assets: (defined in AS26) at least Rs. 3 Cr. In each of the
preceding three years,
• Not more than 50 % of which should be in its projects(for which fund are
proposed to raise)
• If exceeds 50%, the issuer should make firms commitment to utilize the
excess in its project.
• Minimum average pre-tax profit of 15 Cr. Calculated during
the three most profitable years out of the immediately
preceding 5 years
• If an issuer does not satisfy any above conditions, it can
make IPO if the issue is made through book building
process.
CONDITIONS OF FPO

• The aggregate of the proposed issue and all other issues in

the same financial years in terms of issue size does not
exceed 5 times its pre-issue net worth
• In case of change of its name within the last one year, not
less than 50% of its revenue for the preceding full year has
been earned from the activity indicated by the new name.
PRICING IN PUBLIC ISSUE

• Pricing:
(1) An issuer may determine the price of specified securities
in consultation with the lead merchant banker or through
the book building process.
(2) ***An issuer may determine the coupon rate and
conversion price of convertible debt instruments in
consultation with the lead merchant banker or through
the book building process.
• Differential Pricing:
companies may issue shares/convertible securities to
applicants in the firm allotment category at a price different
from the price at which the net offer to the public is made,
provided the price at which the securities are offered to
public
• Price Band:
The issuer / issuing company can mention a price band
(cap & floor price 20%) in the offer document filed with
SEBI and the actual price can be determined at a later date
before filing it with the ROC.
• Price Discovery:
Book building is the process by which
an underwriter attempts to determine at what price to offer
an initial public offering (IPO) based on demand from
investors
• Denomination of Shares: Public of equity shares can be made in any
denomination in accordance with Sec. 13(4) of the Companies Act and in
compliance with norms specified by SEBI from time to time.
• The companies which have already issued shares in the denominations of
Rs. 10 or Rs. 100 may change their standard denomination by splitting /
consolidating them
CLASSIFICATIO
N OF
COMPANIES
CLASSIFICATION OF
COMPANIES

Company

On the basis
On the basis
of
of liabilities
incorporation

Limited by Limited by Unlimited by

Statutory Non statutory
shares guarantee liabilities
 Limited
by share

One
Public Private
person
STATUTORY COMPANY

• A company formed by a special Act passed either by the Central or State

Legislature is called a Statutory Company. Such companies are governed by
their respective Acts.
• These companies are usually formed to carry out some special public
undertakings.The object of such companies is not so much to earn profit but
to serve people.
• The audit of such companies is conducted under the supervision, control and
guidance of the Comptroller and Auditor General of India.
• Some of the important statutory companies are Reserve Bank of India, State
Bank of India, Life Insurance Corporation of India, Industrial Finance
Corporation, etc.
REGISTERED COMPANIES

• Companies registered under the Indian Companies Act

are known as Registered Companies.
• These companies are governed and regulated by the
provisions of the Companies Act, Memorandum of
Association and Articles of Association.
• These companies may be limited by shares or limited by
guarantee or unlimited companies.
COMPANIES LIMITED BY
SHARES
• A company having the liability of its members limited by
the amount, if any, unpaid on the shares respectively held
by them, is called as a company limited by shares [Sec.2
(22)].
• For example if AB.Ltd. has a share capital of 10,000 shares
of Rs. 10 each, and A has purchased 100 shares on which he
has paid so far Rs. 6 per share, the maximum liability of A
is only Rs. 4 per share (the unpaid amount).
COMPANIES LIMITED BY
GUARANTEE
• a company in which liability of each member is limited to
such amount as the members may voluntarily undertake
under the memorandum of association.
• To contribute to meet out the deficiency of the assets of the
company in the event of its being wound up. The
guaranteed amount may differ from member to member
[Sec.2 (21)].
UNLIMITED COMPANIES

• A company not having any limit on the liability of its

members is termed as an unlimited company [Sec. 2 (92)].
• In the case of an unlimited company, liability of each
member extends to the whole amount of the company’s
debts and liabilities.
• The registered companies (whether limited or unlimited)
may be either private or public companies.
 PRIVATE COMPANY
• Sec. 2 (68) a company which has a minimum paid up capital of Rs 1 lakh or
such higher paid-up capital as may be prescribed, and whose articles of
association contains the following restrictions:
• ( a ) restricts the right of members to transfer its shares;
• ( b ) limits the number of its members to 200
• (c ) prohibits any invitation to the public to subscribe for any securities of the
company.
• A private limited company may be registered with only two members. A
private limited company is required to add the words ‘private’ (or pvt.) as part
its name.
PUBLIC COMPANY

• Sec. 2 (71) a company which

( a ) is not a private company ;
( b ) has a minimum paid-up capital of Rs 5 lakh or such higher paid-up capital,
as may be prescribed ;
( c ) is a private company which is subsidiary of a public company which is not
a private company (i.e. subsidiary of a public company whether constituted
as a private company or public company shall be regarded as public
company).
• A public company must have a minimum of 7 members.
• shares of a public company are freely transferable; there is no restriction on
the maximum number of members; a public company may invite the public
to subscribe for its securities - shares, or debentures.
DISTINCTION BETWEEN A
PRIVATE AND A PUBLIC COMPANY
1. Minimum number of members. a private company is 2, whereas for a public company at least
7 members are needed.
2. Maximum number of members. public company is unlimited. But a private company cannot
have more than 200 members
3. Minimum paid up capital. A private company Rs. 1 lakh whereas the minimum paid up capital
,and a public company is Rs 5 lakh.
4. Invitation to public. A private company is prohibited to invite public to subscribe to its share
capital. But a public company can invite the public to subscribe to its shares or purchase its
shares.
5. Transferability of shares. Articles of Association of a private company imposes restrictions on
the transfer of shares. But the shares of a public company are freely transferable.
6. Directors. A public company is required to have at least three directors while a private
company may have only two.
CONVERSION OF A PRIVATE COMPANY
INTO A PUBLIC COMPANY

Section 14 , A private company may get itself converted into a public company
by its own choice. In such a case it must–
(i) Pass a special resolution for amending is articles so as to delete the
restrictive clauses applicable to a private company.
(ii) Increase the paid up capital to at least Rs 5 lakh if it is less than that.
Increase the number of members to 7 if it is less than 7.
(iii) Increase the number of directors to 3, if it is less than 3.
(iv) File within 15 days a copy of the special resolution for altering the articles.
The company shall cease to be a private limited company from the date of the
alteration of the Articles and will become a public company.
PUBLIC TO PRIVATE

A public company can also be converted into a private company by

taking the following steps:
1. The Articles of the company should be altered by passing a
special resolution so as to include the restrictions, limitations and
prohibitions imposed by the Act on private companies.
2. The consent of the Tribunal must be obtained.
3. The company must file with the Registrar a printed copy of the
Articles as altered within 15 days of the receipt of the approval of
the Tribunal.
ONE PERSON COMPANY

Under Section 2(62) a company which has only one person as

a member.
(a) OPC may be registered as a private company with one
member and at least one director [Sec3 (1)(c)].
(b) nominee[Sec 3].
GOVERNMENT COMPANY

• a company in which not less than 51 per cent of the paid-up

share capital is held by: -the Central Govt, or - Any State
Govt or Govts, or -partly by the Central Govt and partly by
one or more State Govts.
• Government Company includes a company which is a
subsidiary of a Government company.
LISTED AND UNLISTED IN STOCK
EXCHANGE

• Listed Company : A Public Limited Company whose any

Securities (Equity, Debt, Shares, Debentures ) Listed in any
Stock Exchange like. Note: Actually Securities (shares or
Debentures) are listed on Stock Exchange not Company.
• When Public Limited Co. shares or Debentures listed in
Stock Exchange, it automatically become Listed Public
Co.***
• Private Limited Company: Which have Members (Min. 2
or Max. 200) & Restriction in transfer of shares. It is
like impossible to get shares listed in Stock Exchange by
Pvt. Co.
• Listed Public Co. = Public Limited Company + Securities
listed in Stock Exchange
• All other Company are Automatically Unlisted Company.
LISTING OF
SECURITIES
• Listing means admission of securities to dealings on a
recognized stock exchange. The securities to be listed can
be from public limited company, central or state
government etc.
• Dealings on a stock exchange basically refers to the rights
related to buying and selling a security on the particular
stock exchanges where the securities are listed.
BENEFITS OF LISTING TO
COMPANY
• Listing provides greater access to capital.
• Listing of securities will increase the value of shares
automatically as liquid assets are always preferred for
investments by the public and also increases the value of
company.
• easily track companies performance by looking at the companies
performance in financial market.
• Listing of securities helps the company to gain national
importance and widespread recognition
BENEFITS TO SHAREHOLDERS

• it makes easy for investors to buy and sell these securities.

• It helps share holders to avoid botheration of canvassing
from door to door to sell the securities.
• By online trading, the current prices for buying and selling
a securities are in knowledge of everyone. So there is no
tension for searching a good price to buy or sell.
• The investors in a listed company get maximum protection
and security in regard to their holdings, because listed
companies are governed by various rules and regulations.
DISADVANTAGES OF LISTING

• Listing of securities makes it possible for anyone to buy and sell

company’s securities. Thus due to listing there will be continuous
change in ownership of company.
• With listing of securities companies are faced rules and
regulations. It is more answerable and accountable for.
• Disclosure - an obligation to inform the public, through the
authorities, of what's going on, although this doesn't always
work as well in practice. It can be quite unhealthy for company’s
competitive strategy.
• Listing of companies requires various kinds of cost to be paid for
listing. Thus list is not cheap as well.
OBJECTIVES OF LISTING

• The major objectives of listing are

1. To provide ready marketability and liquidity of a
company’s securities.
2. To provide free negotiability to stocks.
3. To protect shareholders and investors interests.
4. To provide a mechanism for effective control and
supervision of trading.
LISTING PROCEDURE

• The promoters should first decide on the stock exchange or

exchanges where they want the shares to be listed and
contact the authorities to the respective stock exchange/
exchanges where they propose to list.
• stock exchange requirements and eligibility for listing.
•
• Draft prospectus approval: getting approval of draft
prospectus is the essential pre-requisite for the security to
be listed. The prospectus should clearly state the following.
(I) The name of stock exchange where it intends to list
securities.
(II) Date of opening of issue and closing
(III) Open for Minimum 3 working days
• Listing application: any company when it intends to offer
shares to the public through prospectus, should make an
application to the stock exchange where the share is to be
listed. A no. of certificates are to be submitted with
application and are as follows:
(I) Three certified copies of MOA
(II) Copies of prospectus, offer for sale made during last 5
years and circulars and advertisement regarding offer
made during last five years.(if)
(III) Copy of every letter, report, balance sheet, valuation,
contract, court order or any other document given in the
prospectus.
(IV) Certified copies of underwriting, brokerage, vendors,
promoter’s selling agents and sales managers agreement.
(V) Details regarding the re-organisations, reconstruction,
amalgamation and details of companies activities.(if)
LISTING FEES

• Excel file.
MINIMUM LISTING
REQUIREMENTS BSE
• The minimum paid-up capital of the applicant company shall be
Rs. 3 crore for IPOs
• The minimum market capitalization of the Company shall be Rs.
25 crore (paid-up number of equity shares * the issue price).
• The Issuer shall comply to the guidance/ regulations applicable to
listing as bidding inter alia from
• Securities Contracts (Regulations) Act 1956
• Securities Contracts (Regulation) Rules 1957
• Securities and Exchange Board of India Act 1992
• Companies Act 2013
MINIMUM LISTING REQUIREMENTS
FOR NEW COMPANIES(NSE)
• 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
PROMOTERS’
CONTRIBUTION
MINIMUM PROMOTERS’
CONTRIBUTION

• In a public issue by an unlisted company,

the promoters shall contribute not less than
20% of the post issue capital.
The promoters of the issuer shall contribute in the public issue as
follows: (Listed company)
(a) in case of an initial public offer, not less than twenty per cent of the
post issue capital;
(b) in case of a further public offer, either to the extent of twenty per
cent of the proposed issue size or to the extent of twenty per cent. of
the post-issue capital;
(c) in case of a composite issue, either to the extent of twenty per cent of
the proposed issue size or to the extent of twenty per cent of the post-
issue capital
• In case of an IPO of Convertibles without a prior issue of
equity shares, the promoters contribution would be 20 % of
the project cost.
• The contribution should be brought in at least one day
before the issue opening date and kept in an escrow account
with a bank.
 SECURITIES INELIGIBLE FOR MINIMUM
PROMOTERS’ CONTRIBUTION

 Specified securities acquired during the preceding 3years are ineligible for
computation of Promoter’s contribution if they are:
• consideration other than cash
• Issued under a bonus issue made by utilization of revaluation reserves or
unrealized profits
• Issued under a bonus issue made against equity shares which are ineligible
for minimum promoters’ contribution.
 Specified securities pledged with any creditor.
• Acquired by promoters during the preceding one year at a price lower than
the price at which specified securities are being offered to public in the
initial public offer, however shares acquired would be eligible if:
(i) if promoters pay to the issuer, the difference between the price at which
specified securities are offered in the initial public offer and the price at
which the specified securities had been acquired;
(ii) if such specified securities are acquired in terms of the scheme under
sections 391-394 of the Companies Act
(iii) to an initial public offer by a government company, statutory authority or
corporation , which is engaged in infrastructure sector;
INAPPLICABILITY OF
REQUIREMENT
• The requirement of minimum promoters contribution would
not apply in the following cases:
A. An issuer does not have any identifiable promoter*
B. FPO where the shares are not infrequently traded for at
least three years and the issuer has a track record of
divided payment for at least immediately preceding three
years.
RESTRICTION ON TRANSFERABILITY
(LOCK IN) OF PROMOTERS’ CONTRIBUTION

• In case of any issue of capital to the public the minimum

promoters ‘contribution shall be locked in for a period of 3
years.
• The lock-in shall start from the date of allotment in the
proposed public issue and the last date of the lock-in shall
be reckoned as three years from the date of commencement
of commercial production or the date of allotment in the
public issue whichever is later.
MINIMUM
OFFER TO
PUBLIC
• The minimum net public offer to the public would be
subject to the provision of Rule 19(2)(b) of the securities
contract (regulation) Rules. i.e. at least
• 25% and 10% of each class of issued shares/ convertible
debenture if post issue capital of the company calculated at
a offer price upto Rs. 1600 cr. and 4000 cr. Respectively
 RESERVATION ON COMPETITIVE
BASIS
• when allotment of shares is made in proportion to the
shares applied for by the concerned reserved
categories.
• to the Employees of the company, Shareholders of the
promoting companies in the case of a new company
and shareholders of group companies
• in the case of an existing company, Indian Mutual
Funds, Foreign Institutional Investors (including non
resident Indians and overseas corporate bodies).
• Employees in case of a new issuer, person who are in
permanent/full-time employment of the promoting
companies excluding promoters.
• In case of exiting issuer shareholders 5% of the size.
ALLOTMENT OF
SHARE
• Allotment means distribution of shares among those who
have submitted written application.
• Issued shares is a term of law and finance for the quantity
of shares of a corporation, which have been allocated
(allotted) and are subsequently held by shareholders.
• The number of issued shares is a subset of the total
authorized shares. It is that amount which the board of
directors and/or shareholders have agreed to allocate
• Fulfilment of statutory conditions: The company
secretary has to see that the statutory conditions regarding
the allotment of shares are fulfilled before the Board
proceeds to allot the shares
• Valid offer and acceptance: There should be a valid offer
and acceptance for the allotment to be a valid one. Here the
company is the offertory and the acceptors are the general
public.
• Unconditional Allotment: The allotment must be absolute
and unconditional and also as per the terms and conditions
mentioned in the application.
• Collection of minimum subscription amount: The
minimum subscription amount as noted in the prospectus
has been received within 120 days of the issue of
prospectus.
• Receipt of application money: Not less than 5% of the
nominal value of the share has been secured and has been
received along with the applications.
• Time of allotment: No allotment of shares can be effected
until the beginning of the fifth day from the date of issue of
prospectus. The subscription list must be opened for at least
3 days as disclosed in the prospectus.
• SEBI nominee: If the issue is over subscribed, the shares
are allotted on a proportionate basis. SEBI's nominee is
associated while finalizing the basis of allotment.
CONDITION OF
ALLOTMENT OF
SHARE
• Section 39 of the Act prohibits allotment of securities where
the minimum amount as stated in the prospectus has not
been subscribed. The section further provides that for
refund within a given time frame.
• It provides that all of the minimum amount must be
received within a period of thirty days from the date of
issue of the prospectus
• minimum amount has not been subscribed and the sum
payable on application is not received within the period
specified therein, then the application money shall be repaid
within a period of fifteen days from the closure
PROCEDURES
OF ALLOTMENT
OF SHARES
• In case an issuer company makes an issue of 100% of the
net offer to public through 100% book building process:
a) not less than 35% of the net offer to the public shall be
available for allocation to retail individual investors;
b) not less than 15% of the net offer to the public shall be
available for allocation to non institutional investors i.e.
investors other than retail individual investors and
Qualified Institutional Buyers;
c) Not more than 50% of the net offer to the public shall be
available for allocation to Qualified Institutional Buyers.
• Allotment to retail individual investors, non-institutional
investors and qualified institutional buyers shall be made
proportionately
• The broker shall refund the margin money collected earlier,
within 3 days of receipt of basis of allocation, to the
applicants who did not receive allocation.
• Allotment shall be made not later than 15 days from the
closure of the issue failing which interest at the rate of 15%
shall be paid to the investors.
PROSPECTUS
• A public company may raise its capital by way of:

• Public Offer
• Right Issue
• Private Placement
• A public offer may be Initial Public Offer (IPO) or Further/Follow
on Public Offer
• It is essential for a public company to issue a prospectus, if they
intend to appeal to the public for capital.
• According to Section 2 (70), prospectus means “any
document described or issued as a prospectus and includes
any notice, circular, advertisement or other document
inviting deposits from the public or inviting offers from the
public for the subscription or purchase of any shares in, or
debentures of a body corporate.”
TYPES OF PROSPECTUS

• Red herring
• Abridged
• Shelf (Information Memo. if any changes)
• Deemed
BOOK BUILDING
BOOK BUILDING

• Book building is a price discovery mechanism that is used in IPO.

• When shares are being offered for sale in an IPO, it can either be
done at a fixed price.
• if the company is not sure about the exact price at which to market
its shares, it can decide a price range instead of an exact figure.
• This process of discovering the price by providing the investors
with a price range and then asking them to bid on it is called the
book building process.
• An issuer company can issue securities in the following
manner:
• 100% of the net offer to the public through book building
route.
• 75% of the net offer to the public through the book building
process and 25% through the fixed price portion. (No. of
shares are fixed)
CHARACTERISTICS OF BOOK
BUILDING
• Price Band(cap and floor)
• Bid:
• Allotment:
• Participants:(RII, NII, QIB)
• Tick Size
• Cut off price
• BRLM
• Syndicate member
THE PROCESS

• The Issuer nominates lead merchant banker(s) as book

runners.(BRLM)
• Filing of Red herring Prospectus at least three days before
the opening of the offer
• The Issuer specifies the price band for the bids.
• The Issuer also appoints syndicate members with whom
orders are to be placed by the investors.
• The syndicate members input the orders into an 'electronic
book'. This process is called 'bidding‘.
• The book normally remains open for a period of 5 days
• Bids can be revised by the bidders before the book closes.
• On the close of the book building period, the book runners
evaluate the bids on the basis of the demand at various price
levels.
• The book runners and the Issuer decide the final price at
which the securities shall be issued.
• the issue gets frozen based on the final price per share
• Allocation of securities is made to the successful
bidders(15 days), listing.
(In the event of under-subscription the issuer may make allotment in
any manner)

• The rest get refund orders.(within 3days of allocation)

REVERSE
BOOK
BUILDING
• It is a mechanism provided for capturing the sell orders on online
basis from the share holders through respective Book Running
Lead Managers (BRLMs) which can be used by companies
intending to delist its shares through buy back process.
• It is a mechanism where, during the period for which the Reverse
Book Building is open, offers are collected from the share
holders at various prices, which are above or equal to the floor
price. The buy back price is determined after the offer closing
date
PREFERENTIAL
ALLOTMENT
 Preferential Allotment is used to mean the issue of specified
securities by a company listed on a recognized stock
exchange, to any select person or group of persons, on
preferential basis.
The offer can be made to any person whether they are equity
shareholders and employees of the company or not.
CONDITIONS FOR PREFERENTIAL
ALLOTMENT OF SHARES

A. Approved by Special Resolution:

• The proposed offer of shares or invitation to subscribe shares
has been approved by the shareholders of the company, by a
Special Resolution, for each of the Offer of Invitation.
B. Authorization in Article of Association:
There should be authority in AOA of the Company to issue
shares/ securities. If such power is absent then amend the
clauses of AOA .
C. Restrictions on Allotment:
• A min. 10% of securities should be allotted to mutual funds.
Their unsubscribed portion may be allotted to other QIBs.
D. Time period for completion of the Allotment:
• The allotment of securities on a preferential basis shall be
completed within a period of twelve months from the date
of passing of the special resolution.
• If the allotment of securities is not completed within twelve
months from the date of passing of the special resolution,
another special resolution shall be passed for the company
to complete such allotment thereafter.
• E. Restrictions on Amount Raised:
In the same FY should not exceed 5 times the net worth of the issuer as per
its audited balance sheet of the previous year

• F. tenure: the max tenure of the convertible securities would be 5 years

from the date of allotment
• G. Minimum no. of allotees: min. No. of for each placement should be
at least 2 and 5 for the issue up to and more than 250 Cr. Respectively.
Not more than 50% allotted to single investor (including QIB)
• H. Lock-in period for promoter(s):
• The instruments allotted on a preferential
basis to the promoter / promoter group, shall
be subject to lock-in of 3 years from the date
of their allotment
• the instruments allotted on preferential basis
to any person shall be locked-in for a period
of 1 year from the date of their allotment
PRIVATE
PLACEMENT
• A Private Placement is any offer of securities or invitation
to subscribe securities to a select group of persons by a
company through issue of a private placement offer letter.
Securities issued as private placements include debt, equity,
and hybrid securities.
 CONDITIONS FOR PRIVATE
PLACEMENT:

• A private placement offer cannot be made to more than 200 people (per security)
in aggregate in a financial year excluding “qualified institutional buyers” and
employees of the company
• If a company makes an offer to allot or invite subscription, or allots, or enters in
to an agreement to allot, securities to more than 200 persons. the same shall be
deemed to be an offer to the public .
• The number of such offers or invitations shall not exceed 4
in a financial year and not more than once in a calendar
quarter with a minimum gap of 60 days between any 2 such
offers or invitations.
• The value of such offer or invitation shall be with an
investment size of not less than 20,000 Rupees of the face
value of the Securities
• The payment for the subscription should be made through
cheque or demand draft or other banking channels but not
by cash
• A company making an offer or invitation shall allot its
securities within sixty days from the date of receipt of the
application money for such securities and if the company is
not able to allot the securities within that period
• it shall repay the application money to the subscribers
within fifteen days from the date of completion of sixty
days and if the company fails to repay the application
money within the aforesaid period
• it shall be liable to repay that money with interest at the
rate of twelve per cent per annum from the expiry of the
sixtieth day.
PROCEDURE FOR PRIVATE
PLACEMENT OF SECURITIES:
• The person(s) to whom private placement offer/invitation
shall be made has to be identified first. All offers shall be
made only to such persons whose names are recorded by
the company prior to the invitation to subscribe.
• The proposed offer of securities or invitation to subscribe
securities needs to be approved by the shareholders of the
company, by way of a special resolution for each of the
offers/invitations
• The offer letter and the application form addressed
specifically to the allottee shall be sent to him, either in
writing or in electronic mode, within 30 days.
RIGHT ISSUE
• As per Section 62(1) of the Companies act, 2013 if the
Company decides to issue fresh shares, these should be
offered to existing shareholders in proportion to existing
persons who are holders of equity shares.
• ‘Right Issue’ means offering shares to existing members in
proportion to their existing share holding. The object is to
ensure equitable distribution of Shares and the proportion of
voting rights is not affected by issue of Fresh shares.
PROCEDURE FOR ALLOTMENT
OF RIGHT ISSUE OF SHARES:
• a. Call a Board meeting by issue notice of meeting.
• b. Approve right issue including “letter of offer”, which shall
include right of renunciation also and Appointment of merchant
banker
• c. Send offer letter to all existing members as on the date of offer.
(Through registered post or speed post or through electronic
mode to all the existing share -holders at least three days before
the opening of the issue.)
• d. Receive acceptance/ rejection of rights from members to
whom offer has been sent & also from persons in whose favour
right renounced.
• E. Time of Sending Notice : At least 3 days before the opening of
the offer, Opening of Offer Period: 15 to 30 days
• f. Approve allotment by passing of Board Resolution.
• g. Issue of share certificates.
• h. Authorize two directors and one more person for signature on
Share Certificates.
• i. Attach list Name, Address, occupation if any and number of
securities allotted to each of the allottees and the list shall be
certified by the signatory
• j. Authorize a director to file to ROC within 30 days of passing of
Resolution.
• K. Issue share certificate.
• L. Make Allotment within 60 days of receiving of
Application Money.
SEBI GUIDELINES
REGARDING
RIGHTS ISSUES OF
A COMPANY
• 1. Applicability:
• These guidelines apply to the rights issues made by existing
listed companies (the companies whose equity capitals
listed) Therefore a company whose debentures/bonds are
listed but not the equity (i.e. shares) will not be governed by
guidelines. These guidelines are not applicable where the
size of the issue is below Rs. 50 lakhs
• 2. Withdrawal of a Rights Issue:
• Rights issue cannot be withdrawn after the announcement
of the record date. If done, then no security of the company
shall be eligible for listing up to 12 months.
• 3. Appointment of Registrar:
Appointment of Registrars to Issue shall be compulsory.
• 4. Letter of Offer:
Letter of offer shall contain
disclosures specified by SEBI
(Section 3 of SEBI guidelines relating
to contents of offer document).
5. MINIMUM SUBSCRIPTION:

• SEBI requires the following clauses in respect of minimum

subscription to be stated in the letter of offer.
• Where the company does not receive the minimum
subscription of 90% of the issue the entire subscription will
be refunded to the applicants within 42 days from the date
of closure of the issue.
• If there is delay in the refund of the application money by
more than 8 days after the company becomes liable to pay
the amount, i.e. forty two days after closure of the issue, the
company will pay interest for the delayed period, @ 15%
per annum .
THE LEAD MERCHANT
BANKER SHALL:
• (a) Simultaneously file copies of the draft offer document
with the stock exchanges where the securities offered
through the issue are proposed to be listed.
• (b) Make copies of offer document available to the public.
INVESTORS
PROTECTION
ROLE OF SEBI

• The main object of SEBI is not only to regulate stock

markets but also to protect the interest of investors. For this
purpose, SEBI has given following guidelines:
• (1) Issue of guidelines:
• SEBI has issued guidelines to companies (bringing new issues
in the market) mutual funds, portfolio managers, merchant bankers,
underwriters, lead managers, etc. These guidelines are for bringing
transparency in their operations and also for avoiding exploitation of
investors by one way or the other.

• SEBI has introduced a code of advertisement for public issues for

ensuring fair and truthful disclosures. In order to reduce the cost of
issue, the underwriting is made optional on certain terms.
• These steps are also for the protection of investors. SEBI keeps watch
on all intermediaries and see that they follow the guidelines in the right
spirit.
• (2) Public interest advertisements:
• SEBI issues public interest advertisements to
enlighten investors on the basic features of
various instruments and minimum precautions
they should take before choosing an investment.
The SEBI desires to create an awareness among
investors about their rights and about remedies if
problem arise. It has published some booklets for
the information and guidance of investors.
• (3) Dealing with complaints of investors:

• The investors can make complaints to SEBI if they face problems relating
to their investment in industrial securities and financial assets. SEBI
receives thousands of complaints relating to non-receipt of refund orders,
allotment letters, non-receipt of dividend or interest and delays in the
transfer of shares and debentures. SEBI is making efforts to solve such
complaints through appropriate measures.

• SEBI is keen to solve the complaints of investors and wants to protect their
interests. It is committed to co-operating with various consumer redressal
forum in this regard.
Although, a large number of complaints reaching SEBI are being redressed,
still a large number of complaints remain unredressed.
• (4) Investor education:
• SEBI is aware that investor education is important for his
protection. It encourages the formation of investor
associations that disseminate information through news
letters. SEBI is bringing out two monthly publications for
the investors.
• These are:
(a),SEBI- Market Review, (b) SEBI News-letter.
• (5) Investor surveys:
• SEBI has also conducted surveys in respect of investment
and opportunities for the benefit of small investors. The
findings of the surveys are given wide publicity so as to
provide proper guidance to investors regarding their
investment decisions.
• (6) Disclosures by companies:
• SEBI has introduced norms for disclosure of half yearly
unaudited results of companies. It has also revised the format
of prospectus to provide more information to investors.
• It also insists that every share application Form is
accompanied by an abridged prospectus. The provisions
relating to disclosures are for the information and protection
of small/average investors.
• (7) Code regarding takeovers:
• SEBI has now issued code regarding takeovers of
companies, mergers and amalgamations. It has introduced
regulations governing substantial acquisition of shares and
takeovers and lays down the conditions under which
disclosures and mandatory public offers have to be made to
the shareholders.
Here, the purpose is to protect the interests of investors
even when they are not directly party to such takeovers.
RESPONSIBILITIES
OF LEAD
MANAGER
No lead manager shall agree to manage the Issue unless:
• His responsibilities i.e. disclosures, allotment and are defined
clearly & statement furnished 1 month before the issue.
DISCLOSURES TO SEBI

Following information to be disclosed:

• responsibilities with regard to mgt. of issue.
• change in information (if any).
• names of body corporate associated in present or past.
• if any breach.
• any other activity as manager, underwriter, consultant or
advisor.
PRE-ISSUE OBLIGATIONS

(1) Obtaining stock exchange approvals to memorandum and

articles of associations.

(2) Taking action as per SEBI guide lines

(3) Finalizing the appointments of the following agencies:

•Co-manager/Advisers to the issue
•Underwriters to the issue
•Brokers to the issue
•Bankers to the issue and refund Banker
•Advertising agency
(4) Advise the company to appoint auditors, legal advisers and
broad base Board of Directors

(5) Drafting of prospectus

(6) Obtaining approvals of draft prospectus from the

company’s legal advisers, underwriting financial
institutions/Banks

(7) Approval of prospectus from Securities and Exchange

Board of India.
(8) Filing of the prospectus with Registrar of Companies.

(9) Making an application for enlistment with Stock Exchange

along, with copy of the prospectus.

(10) Publicity of the issue with advertisement and

conferences.
POST-ISSUE OBLIGATIONS

Post issue monitoring reports

• The post issue lead merchant banker shall ensure the
submission of the post issue monitoring reports
• Due diligence certificate to be submitted with the final post
issue monitoring report. The post issue lead merchant
banker shall file a due diligence certificate in the format
specified along with the final post issue monitoring report
Redressal of the investor grievances:
• The post-issue lead merchant banker shall actively associate
himself with post-issue activities namely allotment, refund
and despatch and shall regularly monitor redressal of
investor.
Coordination with the intermediaries:
The post-issue lead merchant banker shall maintain close
coordination with the Registrars to the Issue.
Any act of omission or commission on the part of
intermediaries shall be reported to the Board
• Underwriters
the lead merchant banker shall satisfy himself that the issue is
subscribed (90%) before announcing closure of the issue
• Bank to issue
The post-issue lead merchant banker shall ensure that money
received pursuant to the issue are kept in a separate bank
• Post issue advertisements
Post- issue lead merchant banker shall ensure that in all
issues, advertisement giving details relating to over
subscription, basis on allotment, number, value and
percentage of application received etc. is released within 10
days.
• Basis of allotment
In a public issue of securities , the managing director along with the lead
merchant banker and the registrar to an issue, shall ensure that basis of
allotments is finalised in a fair and proper manner under the SEBI
guidelines

The Merchant Bankers for managing public issue can negotiate a fee
subject to a ceiling. This fee is to be shared by all lead managers,
advisers etc. 0.5% of the amount of public issues up to Rs.25 crores
0.2% of the amount exceeding Rs.25crores
PROPORTIONATE-ALLOTMENT
PROCEDURE
• an allotment shall be made on a proportionate basis within
the specified categories . The proportionate allotments of
securities in an issue, that is oversubscribed shall be subject
to reservation for the retail individual investors.
• A minimum 50% of the net offer of securities to the public
shall initially be made available for the allotment to retail
individual investors.
• The unsubscribed portion of the net offer to any one of the
categories may be made available for allotment to
applicants in the other category, if so required
BOUGHT OUT
DEAL (BOD)
• Bought out deal (BOD) is a process of investment by a
sponsor or a syndicate of investors / sponsors directly in a
company.
• Such direct investment is being made with an understanding
between the company and the sponsor to go for public
offering in a mutually agreed time.
• Bought out deal is a type of wholesale of equities by a
company.
• A company allots shares in full or in lots to sponsors at a price negotiated
between company and the sponsors.
• After a particular period of agreed upon between the sponsor and the
company the shares are issued to the public by the sponsor with a
premium.
• The holding cost of such shares by the sponsors may either be reimbursed
by the company , or the sponsor may absorb the profit in part or full as per
the agreement , arising out of the public offering at a premium .
• After the public offering , the shares are listed in one or more stock
exchanges.
 FEATURES

• Parties : There are three parties involved in the bought out deals . They are
promoters of the company , sponsors and co- sponsors who are generally
merchant bankers and investors .
• Outright sale : there is an outright sale of a chunk of equity shares to a
single sponsor or the lead sponsor.
• Syndicate : Sponsor forms a syndicate with other merchant bankers for
meeting the resource requirements and for distributing.
• Sale price : The sale price is finalized through negotiations between the
issuing company and the sponsors, the sale being influenced by such factors
as project evaluation , promoters image and reputation , current market
sentiments etc.
CONTINUANCE OF
ASSOCIATION OF LEAD
MANAGER WITH AN ISSUE
• The lead manager undertaking the responsibility for refunds
or allotment of securities in respect of any issue shall
continue to be associated with the issue till the subscribers
have received the share or debenture certificates or refund
of excess application money;
• where a person other than the lead manager is entrusted
with the refund or allotment of securities in respect of any
issue,
• the lead manager shall continue to be responsible for
ensuring that such other person discharges the requisite
responsibilities in accordance with the provisions of the
Companies Act and the listing agreement entered into by
the body corporate with the stock- exchange.
BROKER

• A broker is a person or a company that acts as an

intermediary between buyers and sellers. Brokers exist not
just in the financial markets, but in the real estate market,
the commodities market.
• sub-broker means any person who acts in any stock
exchange on behalf of a stock broker as an agent or
otherwise for assisting the investors in buying, selling or
dealing in securities through such stock brokers;
REGISTRATION OF STOCK
BROKERS
• An application by a stock broker for grant of a certificate
shall be made in ‘Form A’ through the stock exchange
• The stock exchange shall forward the application form to
the Board as early as possible but not later than thirty days
from the date of its receipt.
• The Board shall take into account for considering the grant of a
certificate all matters relating to buying, selling, or dealing in
securities
(a) is eligible to be admitted as a member of a stock exchange*
(b) has the necessary infrastructure like adequate office space,
equipments and man power to effectively discharge his
activities;*
(c) has any past experience in the business of buying, selling or
dealing in securities; *
REGISTRATION OF SUB
BROKERS
• The eligibility criteria for registration as a sub-broker shall be as follows,
namely :—
• (i) in the case of an individual;

(a) the applicant is not less than 21 years of age;

(b) the applicant has not been convicted of any offence involving fraud or
dishonesty;
(c) the applicant has at least passed 12th standard equivalent examination from an
institution recognised by the Government : Provided that the Board may relax
the educational qualifications on merits having regard to the applicant’s
experience;
(d) the applicant is a fit and proper person;(as per sebi)
(ii) in the case of partnership firm or a body corporate the
partners or directors, as the case may be, shall comply with
the requirements contained in clauses (a) to (c) of sub-
regulation (i);
(iii) the applicant has the necessary infrastructure like
adequate office space, equipment and manpower to
effectively discharge his activities;
CODE OF
CONDUCT FOR
MERCHANT
BANKERS
• A Merchant Banker shall make all efforts to protect the
interests of investors.
• A Merchant Banker shall maintain high standards of integrity,
dignity and fairness in the conduct of its business.
• A Merchant Banker shall fulfill its obligations in a prompt,
ethical, and professional manner.
• A Merchant Banker shall at all times exercise due diligence,
ensure proper care and exercise independent professional
judgment.
• A Merchant Banker shall endeavour to ensure that-
• inquiries from investors are adequately dealt with;
• grievances of investors are redressed in a timely and
appropriate manner;
• where a complaint is not remedied promptly, the investor
is advised of any further steps which may be available to
the investor under the regulatory system.
• A Merchant Banker shall ensure that adequate disclosures are
made to the investors in a timely manner in accordance with
the applicable regulations and guidelines so as to enable
them to make a balanced and informed decision.
• A Merchant Banker shall endeavour to ensure that the
investors are provided with true and adequate information
without making any misleading or exaggerated claims or any
• A Merchant Banker shall endeavor to ensure that copies of the
prospectus, offer document, letter of offer or any other related
literature is made available to the investors at the time of issue or
the offer.
• A Merchant Banker shall not discriminate amongst its clients,
save and except on ethical and commercial considerations.
• A Merchant Banker shall not make any statement, either oral or
written, which would misrepresent the services that the Merchant
Banker is capable of performing for any client or has rendered to
any client.
• A Merchant Banker shall avoid conflict of interest and make
adequate disclosure of its interest.
• A Merchant Banker shall put in place a mechanism to resolve any conflict
of interest situation that may arise in the conduct of its business or where
any conflict of interest arises, shall take reasonable steps to resolve the same
in an equitable manner.
• A Merchant Banker shall make appropriate disclosure to the client of its
possible source or potential areas of conflict of duties and interest while
acting as Merchant Banker which would impair its ability to render fair,
objective and unbiased services.
• A Merchant Banker shall always endeavor to render the best possible
advice to the clients having regard to their needs.
• A Merchant Banker shall not divulge to anybody either orally or in writing,
directly or indirectly, any confidential information about its clients which
has come to its knowledge, without taking prior permission of its clients,
except where such disclosures are required to be made in compliance with
any law for the time being in force.
• A Merchant Banker shall ensure that any change in registration status / any
penal action taken by the Board or any material change in the Merchant
Bankers financial status, which may adversely affect the interests of clients /
investors is promptly informed to the clients and any business remaining
outstanding is transferred to another registered intermediary in accordance
with any instructions of the affected clients.
• A Merchant Banker shall not indulge in any unfair competition, such as
weaning away the clients on assurance of higher premium or advantageous
offer price or which is likely to harm the interests of other Merchant
Bankers or investors or is likely to place such other Merchant Bankers in a
disadvantageous position while competing for or executing any assignment.
• A Merchant Banker shall maintain arms length relationship between its merchant
banking activity and any other activity.
• A Merchant Banker shall have internal control procedures and financial and
operational capabilities which can be reasonably expected to protect its
operations, its clients, investors and other registered entities from financial loss
arising from theft, fraud, and other dishonest acts, professional misconduct or
omissions.
• A Merchant Banker shall not make untrue statement or suppress any material fact
in any documents, reports or information furnished to the Board.
• A Merchant Banker shall maintain an appropriate level of knowledge and
competence and abide by the provisions of the Act, regulations made thereunder,
circulars and guidelines, which may be applicable and relevant to the activities
carried on by it. The merchant banker shall also comply with the award of the
Ombudsman passed under Securities and Exchange Board of India (Ombudsman)
Regulations, 2003.
• A Merchant Banker shall ensure that the Board is promptly informed about any
action, legal proceedings etc., initiated against it in respect of material breach or
non compliance by it, of any law, rules, regulations, directions of the Board or of
• (a) A Merchant Banker or any of its employees shall not render, directly or
indirectly, any investment advice about any security in any publicly accessible
media, whether real-time or non real-time, unless a disclosure of his interest
including a long or short position, in the said security has been made, while
rendering such advice.
(b) In the event of an employee of the Merchant Banker rendering such advice,
the merchant banker shall ensure that such employee shall also disclose the
interests, if any, of himself, his dependent family members and the employer
merchant banker, including their long or short position in the said security, while
rendering such advice.A Merchant Banker shall demarcate the responsibilities of
the various intermediaries appointed by it clearly so as to avoid any conflict or
confusion in their job description.
• A Merchant Banker shall provide adequate freedom and powers to its
compliance officer for the effective discharge of the compliance officers duties.
• A Merchant Banker shall develop its own internal code of
conduct for governing its internal operations and laying down its
standards of appropriate conduct for its employees and officers in
carrying out their duties. Such a code may extend to the
maintenance of professional excellence and standards, integrity,
confidentiality, objectivity, avoidance or resolution of conflict of
interests, disclosure of shareholdings and interests etc.
• A Merchant Banker shall ensure that good corporate policies and
corporate governance are in place.
• A Merchant Banker shall ensure that any person it employs or
appoints to conduct business is fit and proper and otherwise
qualified to act in the capacity so employed or appointed
(including having relevant professional training or experience)
• A Merchant Banker shall ensure that it has adequate resources to
supervise diligently and does supervise diligently persons employed
or appointed by it in the conduct of its business, in respect of
dealings in securities market.
• A Merchant Banker shall be responsible for the acts or omissions of
its employees and agents in respect of the conduct of its business.
• A Merchant Banker shall ensure that the senior management,
particularly decision makers have access to all relevant information
about the business on a timely basis.
• A Merchant Banker shall not be a party to or instrumental
for -
• creation of false market;
• price rigging or manipulation or;
• passing of unpublished price sensitive information in respect of
securities which are listed and proposed to be listed in any stock
exchange to any person or intermediary in the securities market.