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1. Equity shares (at par/ premium)
  • Shares are floated at face value or at a premium
  • Only companies with a track record or companies floated by other firms/companies with a track record are allowed to charge premium
  • Premium is normally arrived at after detailed discussions with the lead managers
  • Premium can be any amount but has to be justified as per Malegam Committee recommendations
  • Malegam committee recommends price justification on the basis of
  • The earnings per share (EPS) for the last three years and comparison of pre-issue  price to earnings (P/E) ratio to the P/E ratio of the Industry.
  • Latest Net Asset Value.
  • Minimum return on increased networth to maintain pre-issue EPS.
    • Face value of a share can be of any denomination not less than one rupee or a decimal of a rupee (w.e.f from June 11, 1999), it used to be Rs.10 or Rs. 100 earlier
    • Subscription can be solicited either through private placement or a public issue


    Rights Issue of equity :
    When a company wants to raise capital by issuing additional securities, it may give current shareholders the opportunity, ahead of the general public, to buy the new issue in proportion to the number of shares already owned. The piece of paper evidencing this privilege is called a right. These additional shares are usually offered below the current market price and have to be exercised within a relatively short period.

    This method of raising finance is similar to a private placement with the existing shareholders being the counter parties in the exchange. This method reduces the cost of financing substantially.

    When a company issues additional equity capital it has to be offered in the first instance to the existing shareholders on a pro-rata basis as per Section 81 of the Companies Act, 1956. The shareholders may by a special resolution forfeit this right, partially or fully by a special resolution to enable the company to issue additional capital to the public or alternatively by passing a simple resolution and taking the permission of the Central Government.
     

    More about Equity Shares
    Issue Guidelines for raising equity
    Requirements with respect to the listing of securities on a recognised stock exchange

    Back to Types of Equity Instruments

    Other Equity Instruments
    Preference Shares
    Depository Receipts (GDRs and ADRs)
    Warrants

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