FAQ on Issues of Shares

1. Once the shares are issued, how can one report it?

Forms should be filed by an Indian company no later than 30 days from the date of issue of shares. The form should be properly completed and signed by the company's Managing Director / Director / Secretary and sent to the company's Designated Dealer, who will forward it to the RBI. See Sub-section 2.2 of Annex 6 of the Foreign Direct Investment takeover regulation for a complete list of documents.

2. What does Depository Receipts mean?

DRS applies ventures/preference to negotiable securities containing a company's INR denominated equity shares and issued on behalf of the company outside India by a Depository Bank. American Depository Receipts (ADRs) are the DRS listed and traded in the US markets. Except in the US markets, the DRS listed and exchanged is known as Global Depository Receipts (GDRs).

3. What are the different kinds of issues that can be made by an Indian company in India?

1) Equity securities; fully, compulsorily, and compulsorily convertible debentures/preference shares.

2) Non-convertible, optionally convertible, or partially convertible debentures/preference shares.

3) Issue of rights.

4) Composite issue.

5) Incentive issue.

6) Institutional placement scheme.

7) Convertible notice.

8) Depository receipt (DR).

4. What is a Rights Issue?

A Right Issue is the issuance of shares or convertible securities to existing shareholders as set by the issuer on a specific date (record date). The rights shall be sold in a fixed ratio to the number of shares or convertible securities held at the date of record.

5. What is a Bonus Issue?

A Bonus Issue is a non-consideration issue of shares to its current owners on the basis of the number of shares already owned by them as of the record date. Shares shall be distributed in a specific ratio from the company's Free Reserve or Share Premium Account to the number of shares held on the record date.

6. What does the private placement of shares mean?

The issue of equity or convertible securities to a small group of citizens not exceeding 49 percent is a private placement.

7. What do offer documents imply?

The offer document contains all relevant information concerning the company, the promoters, the ventures, the financial details, the money-raising items, the terms of the issue, etc., and is used to invite the issuer to subscribe to the issue. In the case of a public issue, the bid document is called a 'prospectus' and in the case of a rights issue, a 'letter of offer'.

8. What are a Draft Offer Document, Red Herring Prospectus, Prospectus, and Letter of Offer? How are they different from one another?

All forms of offer documents are the Draft Offer Paper, Red Herring Prospectus., Prospectus, and Letter of Offer. Companies' entire IPO / FPO have been powered by disclosures since 1992, i.e. by educating investors as much as possible so that they can make informed decisions. The offer documents contain all relevant information relating to the company, the promoters, the ventures, the financial details, the objects of the money collection, the forms of the issue, etc.

9. Is a listed company making a rights issue required to satisfy any entry norm? 

No, for a listed firm making a Rights Issue, there is no entry standard.

10. Are there any mandatory provisions which an issuer is expected to comply with before making an issue?

Yes, there are mandatory requirements that an issuer is required to comply with before making an issue w.r.t. Minimum investment from the promoter and lock-in duration: Unlisted Issuer's public issue: Promoters shall contribute not less than 20% of the post-issue capital that should be locked in for a period of 3 years. For a term of 1 year from the date of listing, the remaining pre-issue capital of the promoters should also be locked in. Public Issue by a Listed Issuer: Promoters shall make a donation of not less than 20% of the post-issue capital or 20% of the size of the issue.

11. Which are the intermediaries involved in an issue?

Merchant bankers to the issue (known as Book Running Lead Managers (BRLM) in the case of book-built public issues) are the intermediaries (registered with SEBI) involved in an issue, Registrars to the issue, and Bankers to the issue & Underwriters to the issue associated with the issue for various activities. In the bid papers, their names, telephone/fax numbers, registration number, and contact person, and email addresses will be disclosed. 

1. I) Merchant Banker: Merchant banker shall take a due care to prepare the bid document containing all the company information. They are also responsible for ensuring compliance during the problem process with the legal formalities and for marketing the issue. 

(ii) Registrars of the Issue: they are involved in finalizing the allocation basis for the Issue and in submitting refunds, details of the allocation, etc. (iii) Bankers of the Issue: the Bankers of the Issue allow the movement of funds in the Issue Process and thus help the Registrars to finalize the allocation basis by providing the Registrars with a clear status of funds. 

(iv) Underwriters: Underwriters are intermediaries who undertake, in the case of an underwritten issue, to subscribe to the securities issued by the firm in the event that they are not completely subscribed to by the public. 

12. In case, the company has not issued shares to the public and it is not listed on the stock exchange, can an application be made for convertible securities in the company? 

even though the company has not sold shares to the public and is not listed on the stock exchange, an application may be made for a public issue of convertible securities.

13. What is a letter of offer?

A letter of offer is a document addressed to the target company's shareholders containing the acquirer's / PACs' disclosures, the target company's financial details statements, the offer price rationale, the offer price, the number of shares to be purchased from the public, the intent of the acquisition, potential acquirer plans, if any, regarding the target company, change of control over the target company.

14. for how long investment in public issues is required to be kept open?

For fixed price public issues: 

1) Working days 

2) For book-built public issues: 7 working days extendable by 3 days in the event of a revision in the price band 

3) For rights issues: 30 days the duration for which an issue is expected to be held open is: 

For fixed price public issues: 10 working days

15. Whether a Foreign investor can invest in Rights shares issued by an Indian company at a discount?

Under the provisions of the Companies Act, 2013, there are no restrictions under FEMA for investment in shares of rights issued at a discount by an Indian firm. In the case of shares of a company listed on a recognized stock exchange in India at a price decided by the company In the case of shares of a company listed on a recognized stock exchange in India at a price determined by the company In the case of shares of a company not listed on a recognized stock exchange in India at a price not less than that at which the bid is made to resident shareholders on a correct basis.

16. What does the composite issue of shares mean?

A Hybrid Issue is a public-cum-right issue of shares or convertible securities, wherein the allocation is proposed to be made concurrently in both the public issue and the rights issue.

17. What does the rights issue of shares mean?

The issue of rights is the issue of equity or convertible securities to existing shareholders as set by the issuer on a record date. The rights are given in relation to the number of shares owned or convertible securities held as of the date of record.

18. What happens if a shareholder does not receive the letter of offer in time?

The Public Notice includes the procedure for such cases, i.e. in cases where the shareholders do not receive the letter of offer or receive the letter of offer in due time. Shareholders are generally advised to submit their consent to the Registrar to bid on plain paper, if any, to MB specifying the name, address, a number of shares owned, Distinctive Folio No, a number of shares offered, and bank information, together with the documents referred to in the public notice, prior to the closing of the offer. On the SEBI website, the public announcement and the letter of the offer along with the form of acceptance are visible.

19. What is the SEBI takeover code? 

SEBI has informed the SEBI (Substantial Acquisition of Shares and Takeovers Regulations, 2011 ('SEBI (SAST) Regulations, 2011') of the Takeover Regulations. The purchase or selling of Listed Company shares is subject to the requirements of the 2011 SEBI (SAST) Regulations.