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How Shares are Issued in India

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How Shares are Issued in India

Shares of a company registered in India can be issued to the general public (with SEBI approval) by a Limited Company or can be issued to persons and entities comprising of friends, relatives, business partners, etc., in case of a private limited company. Private limited companies are prohibited from making any invitation to the public to subscribe to shares of the company. Shares of a private limited company can also not be issued to more than 200 shareholders, as per the Companies Act, 2013. In this article, we look at some of the main methods for issue of shares of a company in India, both private limited and limited company.

Initial Public Offering

Initial Public Offering is when an unlisted company makes a fresh issue of shares or offers for sale its existing shares to the public. IPO is the first step in listing and trading of a company’s shares in a stock market.

Follow on Public Offering

Follow on public offering is when an already listed company makes either fresh issue of shares to the public or offer for sale existing shares to the public by way of an offer document. Offer for sale is typically allowed when the company must satisfy listing or continuous listing obligations.

Rights Issue

Rights issue is when a listed company proposes to issue fresh securities to existing shareholders as on record date. The rights are normally offered in a particular ration to the number of securities held prior to the issue. Rights issue can be used by companies to raise capital without diluting stake of existing shareholders.

Preferential Issue

Preferential issue is an issue of shares of a listed company to select group of persons, being neither a rights issue or public issue. Preferential issue can be used by companies to quickly raise capital, subject to compliance with Companies Act and SEBI regulations.

Private Placement

Private placement is an offer of shares of a company to a select group of persons through issue of a private placement offer letter.

Qualified Institutions Placement

Qualified institutions placement is private placement of equity shares or convertible shares of listed company to Qualified Institutions Buyers as per regulations prescribed by SEBI.