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.

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Frequently Asked Questions

Common questions about How Shares Are Issued in India.

An Initial Public Offering (IPO) is when an unlisted company makes a fresh issue of shares or offers its existing shares to the public for the first time. It is the initial step for a company to get listed and have its shares traded on a stock exchange.

A Follow on Public Offering (FPO) is when an already listed company makes either a fresh issue of shares to the public or offers its existing shares for sale to the public through an offer document. Companies may use FPOs to meet listing or continuous listing obligations.

A Rights Issue is when a listed company proposes to issue fresh securities to its existing shareholders as on a particular record date. The rights are typically offered in a specific ratio to the number of securities held prior to the issue. Rights issues allow companies to raise capital without diluting the stake of existing shareholders.

A Preferential Issue is an issue of shares of a listed company to a select group of persons, neither being a rights issue nor a public issue. Companies can use preferential issues to quickly raise capital, subject to compliance with the Companies Act and SEBI regulations.

A Private Placement is an offer of shares of a company to a select group of persons through the issue of a private placement offer letter. It is a way for companies to raise capital from a limited set of investors without a public offering.

A Qualified Institutions Placement (QIP) is a private placement of equity shares or convertible shares of a listed company to Qualified Institutional Buyers as per regulations prescribed by SEBI. It is a way for listed companies to raise capital from institutional investors.

No, a private limited company is prohibited from making any invitation to the public to subscribe to its shares. Shares of a private limited company can only be issued to a limited number of persons, typically friends, relatives, and business partners.

According to the Companies Act, 2013, a private limited company cannot have more than 200 shareholders.

The article outlines several methods for companies to issue shares in India, including Initial Public Offering (IPO), Follow on Public Offering (FPO), Rights Issue, Preferential Issue, Private Placement, and Qualified Institutions Placement (QIP).

Yes, the article mentions that for a Limited Company to issue shares to the general public through an Initial Public Offering (IPO), SEBI approval is required.