Are you thinking of raising capital by issuing shares to investors? If so, you need to be aware of the different types of share issues and the procedures you must follow to issue shares in the Indian context.
In this article, we’ll look at the types of share issues – public issue, rights issue, and private placement – along with the procedures such as filing with the Registrar of Companies, drafting the offer document, and pricing of the issue.
We’ll also examine how to ensure a successful stock market investment. So, if you’re planning on issuing shares to investors, this article is sure to help!
Types of Share Issues
When a company decides to issue shares to raise capital, it can do so in many different ways. In this section, we will discuss three types of shared issues in the Indian context – public issues, rights issues, and private placement. We will look at the advantages, disadvantages, and implications of each type of share issue.
A rights issue is a type of share issue in which the existing shareholders of the company are given the right to purchase additional shares at a specified price by a specified date. This type of issue is commonly used by companies in India to raise funds for expansion and other long-term objectives. It allows existing shareholders to maintain their percentage stake in the company while also receiving additional benefits, such as bonus shares or dividends. The stock market investment will be increased as a result of the rights issue, as the additional shares will become available for trading. This type of share issue is an attractive option for investors from India looking to invest in growing companies.
For investors, private placements offer the potential to acquire shares at better rates than they might in the open market.
However, private placements come with certain risks. As information is not openly available, investors have less insight into the company’s operations, track record, and financial health. Thus, investors should do thorough due diligence on any company they are considering investing in via a private placement.
Share Issue Procedure
In India, the procedure for issuing shares to investors is fairly comprehensive and involves a series of steps. Firstly, the issuer will need to register with the Securities and Exchange Board of India (SEBI) and then obtain the relevant permission from the company affairs department of the Ministry of Corporate Affairs (MCA). This is completed with the help of a designated merchant banker.
The price of the shares is also subject to the scrutiny of the designated merchant banker.
The issuer must then prepare and file an offer document with SEBI, which will outline the details of the shares to be issued and provide necessary financial disclosures. This offer document will be made available to the public and is also subjected to scrutiny by SEBI.
If the exchange approves the listing, the issuer can commence the issue of shares to investors.
This involves issuing shares to investors equitably and preventing any market manipulation.
Filing with Registrar of Companies
is a mandatory step in issuing shares to investors in the Indian context.
Furthermore, companies must complete a prescribed e-form for any new share issuances. This ensures that investors are aware of any changes in the company’s ownership.
Pricing of the Issue
When pricing the issue of shares to investors, companies must keep multiple factors in mind. In India, companies typically use the book-building method to set the price of their issue of shares. This process involves gauging the demand for the shares by measuring the demand from potential investors during a predetermined period.
Investors determine the price of the issue based on the average value of their bids during this period.
Payment of Fees
When issuing shares to investors in India, several fees and charges must be taken into consideration. The issuer must pay a filing fee to the relevant stock exchange, in addition to stamp duty, fees charged by the Registrar of Companies, and the stock market investment intermediary. Depending on the nature of the investment and the type of shares, additional costs may also apply.
The process of issuing shares to investors in India is relatively easy and straightforward. It can be done through the stock market or direct investment.
Simultaneously, it is crucial for the investor to exercise due care and diligence to ensure that the investment is suitable and that the venture will reap the benefits of the investment.
It is important to retain the support and confidence of the investors to ensure the success of the venture. The right strategy and consultation can make issuing shares to investors a rewarding experience for both the business and investors.
It is important to remember that the stock market investment carries with it inherent risks. Investor should do their due diligence to understand the venture they are investing in and should ensure that they understand their legal rights and obligations under the terms of their investment. Additionally, the investor should stay aware of the fluctuations in the stock market as this could affect their investment.
By taking proper care and diligence, issues of shares to investors in India can be a rewarding experience for both the business and the investor. It is important to remember
that the investment is based on trust and confidence and that the investor should do their due diligence to understand their legal rights and obligations. Similarly, the business should take the time to understand the needs and expectations of the investors before issuing shares. Proper guidance should be sought from professionals with expertise to ensure that the investment yields positive returns.