By far the most important method of issuing securities, a public issue involves sale of securities to the public at large. Public issues in India are governed by the provisions of the companies Act, 1956 SEBI Guidelines on investor protection, and the listing agreement between the issuing company and the stock exchange. The companies Act describes the procedure to be followed in offering share to the public and the type of information to be disclosed in the prospectus and the SEBI guidelines impose certain conditions on the issuers besides specifying the additional information to be disclosed to the investors.
The issue of securities to members of the public involves a fairly elaborate process comprising of the following steps:
* Approval of the board of directors
* Approval of shareholders
* Appointment of the lead managers
* Due diligence by the lead manager
* Appointment of other intermediaries like co-managers, advisors, underwriters, bankers, brokers and registrars.
* Preparation the draft prospectus.
* Filing of the draft prospectus with SEBI
* Application for listing in stock exchanges
* Filing of the prospectus (after any modifications suggested by SEBI) with the Registrar of companies.
* Promotion of the issue
* Printing and distribution of applications
* Statutory announcement
* Collection of applications
* Processing of applications
* Determination of the liability of underwriters
* Finalization of allotment
* Giving of demat credit (or dispatch of share certificates) and refund orders
* Listing of the issue
As an investor, you should be familiar with the following aspects of public issues:
A company making public issue informs the public about it through statutory announcements in the news paper, makes application forms available though stock brokers and others and keep the subscriptions open for a period of three to seven days. Investors can now download the application forms from the websites of brokers or other distributors like Karvy Consultancy (Kavy.com – New Issues) and Capital Market (capitalmarket.com/- IPO center).
When you apply or a primary issue you can ask for allotment in dematerialized form or physical form. Now it is mostly in dematerialized form.
If the issue is over subscribed the pattern of allotment is decided in consultation with the stock exchange where the issue is proposed to be listed. After the allotment pattern is finalized the company mails the allotment advice/letter along with refund order, if any. This is supposed to be done within a few weeks of the closure of subscription.
If the full amount is not asked for that the time of allotment, the balance is called in one or two calls later. The letter of allotment is exchangeable for share certificates (or debentures certificates as the case may be) after it is duly stamped by the bank where the balance payment is made. Of course, if the allottee wants he can sell the letter of allotments itself by transmitting it along with a transfer deed.
If the allottee fails to pay the call monies as and when called by the company, the shares are liable to be forfeited. In such a case, the allottee is not eligible for any refund for the amount already paid.
When a company issues new shares by way of Public issue (or for what matter a rights issue or bonus issue), these shares may be entitled for dividend only from the date of allotment. As per a central government directive, there is to be only one quotation in the stock exchanges for the existing shares of a company and new shares arising out of the further issues made by the same company. The new shares, are however, permitted to be traded and delivered pari passu with the existing shares against the quotation subject to the deduction of the divided amount, if any of the previous year.