Issue of Shares Advantages and Challenges for Companies
aising money is one of the most important tasks for any company that wishes to grow, expand, or strengthen its position. In India, the issue of shares has become one of the most trusted ways for businesses to invite investment and share ownership. Companies from large corporations like ashok leyland bonus shares announcements to small startups entering the stock market depend on share issuance for funding.
The process of issuing shares is not only about giving away ownership but also about following a legal framework that protects investors. In this article, you will learn what the issue of shares means, how it works, its different types, and why it matters in today’s financial world.
What is the Issue of Shares?
The issue of shares is the process through which a company raises money by offering ownership units, called shares, to investors. These shares represent a portion of the company’s capital, and in return, investors provide funds that support the business.
In India, this process is governed by the Companies Act, 2013 and regulated by the Securities and Exchange Board of India (SEBI). Both equity and preference shares can be issued, and each has its own rights and obligations. The issue of shares is the backbone of the stock market, as it allows companies to convert ideas into reality with the help of investor support.
Types of Issue of Shares
When companies decide to raise money, they have several options for issuing shares. Each type fulfills a different need and is aimed at either existing shareholders or the general public.
Equity Shares
Equity shares are the most common form of the issue of shares in India. These shares give investors voting rights in company decisions and a share in the profits through dividends. They also benefit during company growth, as the value of equity shares often rises with success.
Preference Shares
Preference shares are a special form of shares that give investors priority in dividend payments. In the event of liquidation, preference shareholders also receive repayment before equity holders. However, they usually do not carry voting rights.
Bonus Shares
Bonus shares are additional shares given to existing shareholders free of cost. For instance, when ashok leyland bonus shares were declared, it rewarded loyal investors without any fresh capital being invested.
Rights Issue
Rights issues allow existing shareholders to purchase additional shares at a discount. This ensures that current owners can maintain their stake in the company.
Differential Voting Rights (DVR) Shares
Some companies issue shares with lower or higher voting rights than ordinary equity shares. These are known as DVR shares and help companies retain control while still raising funds.
Process of Issue of Shares in India
The issue of shares follows a structured process in India to protect investors and maintain transparency.
Step 1: Drafting a Prospectus
Companies prepare a detailed prospectus that includes financial data, risks, and details about the share issue. This acts as an invitation for the public to invest.
Step 2: Application by Investors
Investors apply for shares through ASBA (Application Supported by Blocked Amount), where funds are blocked in their accounts until shares are allotted.
Step 3: Minimum Subscription
A company must achieve at least 90% subscription for the share issue to be considered valid. If this target is not reached, the money is returned to investors.
Step 4: Allotment of Shares
After applications are reviewed, shares are allotted to investors. In oversubscribed cases, allotment is often done on a pro-rata basis.
Step 5: Listing on Stock Exchanges
Finally, the issued shares are listed on recognized stock exchanges like NSE or BSE, making them available for trading.
Important Terms in the Issue of Shares
Understanding key terms is essential to grasp the complete picture of how share capital works in India.
| Term | Meaning |
|---|---|
| Authorized Capital | The maximum amount of share capital a company is allowed to raise. |
| Issued Capital | The part of authorized capital actually offered to investors. |
| Subscribed Capital | The portion of issued capital that investors agree to buy. |
| Paid-Up Capital | The actual money received by the company for issued shares. |
| Called-Up Capital | The amount a company asks shareholders to pay on their shares. |
These terms together explain how companies manage the money they raise through the issue of shares.
Role of SEBI and Regulation
The Securities and Exchange Board of India (SEBI) plays a vital role in regulating the issue of shares. It ensures that companies follow rules, maintain transparency, and provide accurate information to investors. SEBI’s role becomes even more important when companies bring public issues like IPOs or rights issues.
Without SEBI’s supervision, investors would face higher risks of fraud or misinformation. Therefore, strict compliance is required before a company can issue shares publicly.
Public and Private Issue of Shares
The issue of shares can be broadly divided into public issues and private placements.
Public issues include Initial Public Offerings (IPOs) and Follow-on Public Offers (FPOs). These are open to all investors and listed on stock exchanges.
Private issues are offered to specific investors such as qualified institutional buyers or private groups. These include preferential allotments and Qualified Institutional Placements (QIPs).
Both types serve different needs. While public issues enhance market visibility, private placements bring quick funding from select investors.
The Importance of Issue of Shares
The issue of shares is not just about raising capital. It impacts ownership, control, and even market perception. For investors, shares represent a chance to own part of a company and benefit from its success. For companies, it reduces dependence on loans and builds credibility in the market.
In recent years, many companies have opted for rights issues and bonus shares to reward shareholders. Meanwhile, tech startups entering the market use IPOs to raise funds and gain recognition. The link between fundraising and investor confidence makes the issue of shares an important pillar of modern business.
Issue of Shares and Market Examples
Real-world examples help us understand how share issuance affects both companies and investors. The announcement of BluSmart Share Price during fundraising showed how investor trust can drive demand for new shares. Similarly, companies like Reliance and Tata have often used rights issues to secure billions in capital for expansion.
Such examples show that the issue of shares is not just a legal process but also a tool for building market presence and trust.
Advantages and Challenges of Share Issuance
Companies enjoy many benefits when they raise money through shares. It brings permanent capital, does not require repayment like loans, and improves creditworthiness. Shareholders benefit from dividends, capital appreciation, and voting rights in company matters.
However, challenges exist too. The issue of shares dilutes ownership, which may reduce promoter control. It also requires strict regulatory compliance and involves high costs of issuing, listing, and maintaining shares in the market.
Bonus Shares and Rights Issues in Practice
Many companies use bonus issues and rights issues to maintain goodwill with investors. Bonus shares act as a reward without reducing reserves, while rights issues give loyal investors the opportunity to expand their holdings.
For example, when companies announce bonus shares, it creates excitement in the market. Similarly, rights issues often provide shares at a discount, giving existing shareholders an attractive deal.
Conclusion
The issue of shares in India is one of the strongest tools for companies to secure long-term funds while giving investors a share in growth. From equity and preference shares to bonus and rights issues, every type has its unique role in shaping the future of businesses.
With SEBI’s regulations ensuring fair practices, the process has become more transparent and accessible. For companies, issuing shares means expanding their reach and reducing dependence on debt. For investors, it means becoming part-owners in enterprises that can change the future.
As Indian markets continue to grow, the issue of shares will remain central to building connections between businesses and investors. It is not just about money; it is about trust, growth, and opportunity in the financial world.