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
Rights Shares | 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 |