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Chap 3 issue of shares Revision |12th SP

Amol Kasar's AKCA・47 minutes read

Revision of the chapter is essential, focusing on the issues of shares and lock-in periods, with details on public offers, subscriptions, rights issues, share allotment, and the role of underwriters in ensuring subscription for a public issue. Various statutory provisions, including SEBI requirements, the minimum subscription rate, and the refund policy for unmet minimum subscription levels, are explained in detail to ensure compliance with regulations and a smooth public issue process.

Insights

  • Different methods, such as fixed price and book building, are utilized for public offers of shares, with varying lock-in periods for different types of shares, emphasizing the importance of understanding these mechanisms for investors and companies alike.
  • The process of share allotment is highly regulated, involving specific timelines, minimum subscription requirements, and the role of underwriters to ensure compliance with SEBI regulations, underlining the meticulous steps and oversight necessary for a successful public share offering.

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Recent questions

  • What is the purpose of a lock-in period?

    A lock-in period restricts the sale of shares.

  • What is the difference between IPO and FPO?

    IPO is the initial public offer, while FPO is a follow-on public offer.

  • What is the purpose of a red herring prospectus?

    A red herring prospectus sets a price range for bidding.

  • What is the significance of a rights issue?

    Rights issues offer existing shareholders the first option to buy new shares.

  • What is the role of underwriters in a public issue?

    Underwriters ensure subscription for shares in exchange for a commission.

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Summary

00:00

"Understanding Public Offer Methods and Lock-in Periods"

  • Revision of chapter three is essential, focusing on the issue of share and the concept of a lock-in period.
  • Sweat equity shares had a lock-in period of 3 years, while SPS and SOS had a lock-in period of one year.
  • Public Offer includes IPO and APO, with fixed price issue method and book building method being key points.
  • Prospectus details the quantity and price of shares offered to the public in the fixed price issue method.
  • Public offer of shares can be through fixed price or book building method, with subscribers paying a portion of the face value.
  • Subscription period determines the demand for shares after the IPO is launched.
  • Fixed price method is used for public and right issues, with a fixed price higher than the face value.
  • Book building method involves determining share numbers and prices through a bidding process.
  • Red herring prospectus in book building method sets a price range for bidding.
  • IPO refers to the initial public offer, while FPO is a follow-on public offer after the IPO.

13:05

Understanding Rights Issues and Share Allotment

  • The first option to buy new shares is through a rights issue.
  • Private placement involves offering shares to a select group without a public offer.
  • The law mandates certain provisions for rights issues.
  • Rights issues must be offered at a price lower than the market price.
  • A letter of offer must be sent to assisting equity shareholders.
  • The letter of offer includes the number of shares, the offer period (15-30 days), and the right to renounce.
  • The letter of offer can be sent via registered post, speed post, courier, or electronically.
  • If a shareholder doesn't respond to the offer within 30 days, it's assumed they're not interested.
  • The company can offer unsold shares to interested parties if the minimum subscription of 90% isn't met.
  • Bonus shares are fully paid shares issued for free to existing shareholders.
  • Bonus shares cannot be renounced or given away, unlike in rights issues.
  • Statutory provisions for share allotment include registering the prospectus with the Registrar of Companies and paying a minimum of 5% of the share's nominal value with the application.
  • SEBI specifies that the application money must be at least 25% of the share's nominal value.
  • The minimum subscription must be met within 30 days of the prospectus issue, with SEBI requiring a minimum of 90% subscription.
  • If the minimum subscription isn't met, the application money must be returned to the subscriber.

27:53

SEBI Guidelines for Public Issue Allotment Process

  • SEBI requires the minimum subscription to be collected within 30 days, with a 90% minimum subscription needed.
  • If the minimum subscription is not met, the application money received must be refunded within 15 days.
  • Underwriters are appointed to ensure subscription, with banks taking on this role for a commission.
  • The subscription list must be open for a minimum of three working days and a maximum of 10 working days.
  • Allotment of shares is based on a predetermined basis for each category of subscribers.
  • Over subscription occurs when the number of shares applied for exceeds what the company has offered.
  • SEBI does not allow allotment exceeding the security offer, with a maximum of 10% permitted.
  • Permission from a recognized stock exchange is required before listing shares.
  • Various appointments, including managers, underwriters, and brokers, must be made for a public issue.
  • The general provision mandates the Board of Directors to set up an allotment committee for share allotment within 60 days of application receipt.

40:07

"Share Allotment Process: Steps and Requirements"

  • Allotment of shares involves a specific procedure that includes various steps and requirements.
  • The board meeting is crucial for approving the allotment formula suggested by the allotment committee.
  • A representative of SEBI must be present during the preparation of the allotment formula by the committee.
  • The board resolution for allotment is passed at the board meeting, leading to the issuance of letters of allotment and regret.
  • Allotment money must be paid within a stipulated time in a bank specified by the company.
  • Applicants can renounce their shares in favor of another person by submitting a form and the original letter of allotment to the company.
  • Splitting of allotment shares involves dividing shares among different individuals after approval from the board and updating the list accordingly.
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