Skip to main content

Equity Capital Markets – Part 6: Types of Capital & Issue Process

Image
By

Equity Capital Markets – Part 2: Types of Capital & Issue Process

Introduction:

In this part of our Equity Capital series, we explore the types of capital, methods of issuing shares, IPO processes, and concepts crucial to understanding how equity is raised and allocated in financial markets.

1. Types of Share Capital

  • Authorised Capital: Maximum capital a company is legally allowed to raise as per its charter.
  • Issued Capital: Portion of authorised capital actually offered to investors.
  • Subscribed Capital: Capital actually subscribed by the investors out of issued capital.
  • Called-Up Capital: Portion of subscribed capital called for payment.
  • Paid-Up Capital: Amount actually paid by shareholders; can be equal to or less than called-up capital.

2. Methods of Share Issue

  • Public Issue: Shares are offered to the general public through an IPO or FPO.
  • Private Placement: Shares issued to a select group of investors. Types include:
    • Preferential Allotment
    • Qualified Institutional Placement (QIP)
    • Institutional Placement Program (IPP)
  • Rights Issue: Existing shareholders offered shares at a discount on a ratio basis.
  • Bonus Issue: Free shares given to existing shareholders based on holdings.
  • Sweat Equity: Shares offered to employees or directors for their contribution.

3. IPO (Initial Public Offering) Process

  • Red Herring Prospectus: Preliminary document outlining the company’s financials and IPO plan (without price).
  • Roadshows: Marketing campaigns and investor meetings to generate interest.
  • Green Shoe Option: Allows the company to issue additional shares if demand is high (up to 15%).
  • Allotment: Shares are allocated to investors based on category (retail, institutional, etc.).
  • Oversubscription: Happens when demand exceeds available shares, requiring pro-rata allotment.

4. Diluted vs Non-Diluted Shareholding

  • Diluted Shareholding: Assumes all options, convertibles, and warrants are converted to shares.
  • Non-Diluted Shareholding: Current outstanding shares only.

5. Pricing Approaches

  • Fixed Price Offer: The price is fixed in advance in the prospectus.
  • Book Building Offer: Price is discovered based on investor bids within a given price band.

6. Stock Exchange vs OTC

  • Stock Exchange: Regulated marketplace where securities are bought and sold (e.g., NSE, BSE).
  • OTC (Over-the-Counter): Decentralized market where securities trade directly between parties, usually unlisted.

Conclusion:

This part covered the foundation of how companies raise funds through equity, the capital structure, and share issuance methods. In Part 3, we will dive into valuation techniques used to analyze equity.

Comments

Post a Comment

Popular posts from this blog

Top Trading & Investment Apps in India (2025)

By
Top Trading & Investment Apps in India (2025) Top 5 Apps for Trading & Investing in India (2025) 1. Zerodha Best for: Active traders & DIY investors Why: Industry-low brokerage, fast Kite platform, powerful charts Drawback: Limited advisory and mutual fund depth USP: Largest retail broker in India 2. Groww Best for: New investors & SIP lovers Why: Simple interface, stocks + direct mutual funds Drawback: Limited tools for advanced trading USP: App simplicity and speed 3. Angel One Best for: Beginner to intermediate traders Why: Advisory support + low brokerage Drawback: UI can feel heavy USP: ARQ Prime AI recommendations 4. Upstox Best for: Budget-conscious traders Why: Flat fee model, clean app Drawback: Limited for advanced traders USP: Simple & affordable platform 5. Fyers Best for: Technical & chart-focused traders Why: Great charts, trader tools ...
Post a Comment
Read more

KYC Interview Questions and Answers (Basic to Expert)

By
KYC Interview Questions and Answers (Basic to Expert) Basic to Expert-Level KYC Interview Questions and Answers This detailed list covers frequently asked KYC (Know Your Customer) interview questions across levels. It’s organized from beginner to expert level and tailored for candidates preparing for banking, NBFC, fintech, and compliance roles. ✅ Easy Level (Beginner) Question 1: What is KYC? Why is it important? Answer: KYC stands for Know Your Customer. It is important because it helps prevent fraud, money laundering, and financial crime by verifying customer identity. Question 2: What documents are collected for KYC? Answer: PAN card, Aadhaar card, passport, voter ID, driving license, utility bill, or bank statement. Question 3: What is the difference between KYC and AML? Answer: KYC verifies customer identity. AML (Anti-Money Laundering) is broader and includes detecting and reporting suspicious activity. KYC is part of AML. Question 4: Wh...
Post a Comment
Read more

Fund accounting process

By
Fund Accounting Procedures with Practical Examples Fund Accounting Procedures with Practical Examples What is Fund Accounting? Fund accounting is a specialized accounting process used by investment funds, mutual funds, hedge funds, and pension funds. It prioritizes accurate Net Asset Value (NAV) calculation, compliance, and transparency over profit measurement. Key Objectives Accurate NAV calculation Regulatory and tax compliance Allocation of income and expenses Timely financial and investor reporting Fund Accounting Process – Step by Step 1. Trade Booking Trades are recorded in the accounting system after execution by the portfolio manager. Example: Fund buys 1,000 Infosys shares at ₹1,500 each. This is recorded as a purchase. 2. Trade Settlement & Validation Confirm trades with brokers and custodians. Monitor settlement (T+1, T+2). Example: Citi confirms a trade is settled correctly with no fa...
Post a Comment
Read more