Distinguish between the following.
1) Initial Public Offer and Further Public Offer
Initial Public Offer
Further Public Offer
1. Meaning: IPO refers to an offer of securities by an unlisted Public Company to the public for the first time.
FPO means an offer of securities by a listed Public Company to the public to raise subsequent capital.
2. Type of issuer company: It is issued by an unlisted Public Company.
It is issued by a listed Public Company.
3. When issued: It is usually issued by an existing company which wants to raise capital from the public for the first time.
It is usually issued by a listed Public company when it wants to raise further capital from the public.
4. Order of issue: IPO proceeds FPO. IPO is the first time sale of shares to the public. Initial Public Offer
FPO is always done after IPO. FPO is the second or subsequent sale of shares to the public.
5. Listing: Company has to get itself listed for the first time before issuing IPO,
Company making an FPO is already a listed company.
6. Risk: It is very risky for the investor as he cannot predict the company’s performance.
It is less risky for the investor as he has an idea of the company’s past performance and can judge its future performance.
2) Fixed Price Issue and Book Building
Fixed Price Issue Method
Book Building Method
1. Meaning: Under this method, the issue price of shares is mentioned in the prospectus and investors have to buy shares at that price only.
Under this method, the issue price is determined by a bidding process. The investors are given a price band and are asked to bid at a price within the band. This way company arrives at a price at which it will sell its shares.
2. Price of Shares: The exact price of shares is known in advance and it is mentioned in the prospectus.
The price of shares is not known in advance. Only the minimum price and maximum price at which the company is willing to sell the shares is known in advance.
3. Prospectus: Company has to issue a prospectus and it contains the details of the price at which shares are offered and the total number of shares offered by the company.
Company issues a Red Herring Prospectus. It contains only the price band and the total size of the issue.
4. Determination of Demand: Company comes to know the public demand for its shares only after closure of the issue
The company can know the public demand for its shares every day. The bids are registered in the book every day until the closure of the issue.
5. Payment of Application Money: Application money or entire money has to be paid by the investor at the time of submitting his application for shares.
Only application money has to be paid at the time of bidding. The money will be collected only after the issue price has been fixed.
6. When Used: It can be used for any issue i.e. Public Issues, Rights Issues, ESOS, etc.
It is usually used in Public issues i.e. IPO and FPO.
3) Rights Shares and Bonus Shares
1. Meaning: In rights issues, shares are offered to the existing equity shareholders i.e. Company offers the shareholders the first option to buy the shares of the company.
Bonus shares are issued to the existing equity shareholders free of cost.
2. Payment: Subscribers have to pay for the Rights Shares. The company only gives them the right to buy these shares.
Bonus shares are issued free of cost to the shareholders.
3. Partly/fully paid up shares: Shareholders have to pay for these shares as Application Money, Allotment, Call Money, etc. till the full money on shares is paid up.
Bonus shares are fully paid up shares. So no money has to be paid by the shareholders to the company.
4. Minimum Subscription: Company has to obtain a minimum subscription. If the company fails to receive a minimum subscription, it has to refund the entire application money received.
There is no minimum subscription to be collected as Bonus shares are issued free of cost by the company.
5. Right to Renounce: The shareholders can renounce his shares.
Shareholders cannot renounce his bonus shares.
6. Purpose of Issue: Rights issue is done by a company when it wants to raise fresh funds but wants to give a chance to their existing members to increase their shareholding.
When a company has accumulated huge profits or reserves and the company wants to reward its existing Equity shareholders, the company issues bonus shares.
4) Transfer of Shares and Transmission of Shares.
Transfer of Shares
Transmission of Shares
1. Meaning: Transfer of shares means voluntarily or deliberately giving away one’s shares to another person by entering into a contract with the buyer.
It means the transfer of ownership of a member’s shares to his legal representative due to the operation of law. It takes place on death, insolvency, or insanity of the members.
2. When done: It is done when the member wants to sell his shares or give his shares as a gift.
It is done when the member dies or becomes insolvent or insane.
3. Nature of Action: It is a voluntary action taken by the member.
It is an involuntary action. It is due to the operation of law.
4. Parties involved: In the transfer of shares there are two parties involved- the member who is called as transferor and the buyer who is called as transferee.
There is only one party e.g, the nominee of the member in case of death of the member of the legal representative.
5. Instrument of transfer: Transfer requires Instrument of transfer. It is a contract between the transferor and transferee.
No Instrument of transfer is needed.
6. Initiated by: The transferor initiates the transfer process.
The legal representative or official receiver initiates the process of transmission.
7. Consideration: Transfer of shares is done often by the member to receive some consideration (money) i.e. the buyer has to pay for the shares. (Except given as a gift.)
No consideration is involved here. The legal heir or official receiver need not pay for the shares.
8. Liability: The liability of the transferor ends after the shares are transferred.
Original liability of the member continues in case of transmission of shares.
9. Stamp Duty: Stamp duty as per the market value of shares has to be paid.
No stamp duty is to be paid