2. Introduction
Meaning of shares & share capital
Types of share & their advantages &
disadvantages
Issue of shares
Meaning of debenture & its types
Real Life IPO & FPO Example
conclusion
2
CONTENTS
3. 3
INTRODUCTION
Companies (Private and Public) need capital either to increase their
productivity or to increase their market reach or to diversify or to purchase
latest modern equipments.
Companies go in for IPO and if they have already gone for IPO then they
go for FPO.
The only thing they do in either IPO or FPO is to sell the shares or
debentures to investors.
(the term investor here represents retail investors, financial institutions,
government, high net worth individuals, banks etc).
Whether they issue shares or debentures totally depends upon the
concerned company.
4. 4
A share is one unit into which the total share capital is
divided. Share capital of the company can be explained as
a fund or sum with which a company is formed to carry
on the business and which is raised by the issue of shares.
Shares are the marketable instruments issued by the
companies in order to raise the required capital.
These are very popular investments which are traded
every day in the stock market and the value of the share at
the end of the day decides the value of the firm.
MEANING OF SHARES
& SHARE CAPITAL
5. 5
The shares which are issued by companies are of two
types:
• Equity Shares
• Preference Shares
TYPES OF SHARES
6. 6
Equity Shares are issued and are traded everyday in the stock
market.
Equity share holders only get dividend after preference
shareholders & debenture holders.
The returns on the equity shares are not at all fixed. It depends
on the amount of profits made by the company.
The board of directors decides on how much of the dividends
will be given to equity share holders. Share holders can accept
to it or reject the offer during the annual general meeting.
Equity shareholders have the right to vote on any resolution
placed before the company.
EQUITY SHARES
7. 7
The Equity share is a common name, some of the types of
equity shares are:
• Blue Chip Shares
• Income Shares
• Growth shares
• Cyclical Shares
• Defensive shares
• Speculative shares
TYPES OF EQUITY SHARES
8. 8
One more classification of shares is given by one of the most
successful and respected investor all around the world Peter
Lynch. According to him the shares can be classified into 6
types:
• Slow Growers
• Fast Growers
• Stalwarts
• Cyclical
• Turn-around
• Asset plays
FURTHER CLASSIFICATION
9. 9
ADVANTAGES
• High Return
• Easily Transferable.
• These can be easily liquidated.
• Right to vote
• Right to choose the board of directors.
• Equity share holders have the right to oppose any of the decisions taken
by the board of directors.
( for e.g. This is what happened when Mr. Ramalinga raju tried to buy
Maytas company)
DISADVANTAGES
• High Risk
• In worst cases less privilege given to equity share holders.
10. 10
These are other type of shares. The preference shares are
market instrument issued by the companies to raise the
capital. Preference shares have the characteristics of both
equity shares and debentures. Fixed rate of dividends are
paid to the preference share holder as in case of debentures,
irrespective of the profits earned company is liable to pay
interest to preference share holders.
PREFRENCE SHARE
11. 11
Preference shares are divided into:
• Cumulative & Non cumulative shares
• Redeemable & Non-redeemable
• Convertible & Non-convertible shares
• Participating and non-participating
TYPES OF PREFERENCE SHARES
12. 12
ADVANTAGES
• These yield fixed rate of returns
• It’s a hybrid instrument having some of the characteristics of
debentures and equity shares.
DISADVANTAGES
• They do not provide the investor with any of the voting
rights.
• If the company gets huge profits then they won’t get any
extra bonus.
13. 13
ISSUE OF SHARES
Prospectus
Application
Repayment/
dividend
Allotment
Detail of a Company & Shares in Prospectus.
90 % application is necessary
If access application received then company issue
shares by pro rata basis
full amount can be called up by company at the
time of application or it can be paid up in
installments also (calls)
share of the company may be issued in any of the
following three ways:
1. At par;
2. At premium; and
3. At discount.
14. 14
Issue of shares for consideration other than cash
(For example: issue of shares to vendors, to promoters etc.)
Forfeiture of shares
Buy – Back of Shares
Right Shares
Redemption of preference shares/ Debenture
CONT….
15. Instrument of debt executed by the company
A certificate of loan
Company pays pre specified percentage of
interest
Part of the company's capital structure
Debentures are generally secured against the
company’s assets
Convertible debentures can be either fully or
partly converted into Shares
Convertible debentures may carry a lower
rate of interest
15
DEBENTURES
16. 16
Security Point of View
i. Secured Debentures
ii. Unsecured Debentures
Tenure Point of View
i. Redeemable Debentures
ii. Perpetual Debentures
Mode of Redemption Point of View
i. Convertible Debentures
ii. Non-Convertible Debentures
Coupon Rate Point of View
TYPES OF DEBENTURES
17. 17
ADVANTAGES
1. Control of company is not surrendered to debenture holders because
they do not have any voting rights.
2. Interest on debenture is an allowable expenditure under income tax
act, hence incidence of tax on the company is decreased.
3. Debenture can be redeemed when company has surplus funds.
DISADVANTAGES
1. Cost of raising capital through debentures is high of high stamps duty.
2. Common people cannot buy debenture as they are of high
denominations.
3. They are not meant for companies earning greater than the rate of
interest which they are paying on the debentures.
18. 18
Jaypee Infratech Ltd.
Sector 128, , District Gautam Budh Nagar , Noida , Uttar Pradesh - 201304
Phone: 4609000 Fax: 4609783
Public Issue of 224799496 Equity Shares of Rs 10 each for Cash at a Premium
of Rs 92 per share.
Issue Open Date Issue Closing Date Application Money Allotment Money
29/04/2010 04/05/2010 102 -
Listed at
BSE, NSE
Object of the issue
.
The Issue comprises a Fresh Issue and an Offer for Sale. The Proceeds of Fresh Issue
The activities for which funds are being raised by our Company through this Issue, after
deducting the proceeds from the Offer for Sale: (i) to partially finance the Yamuna
Expressway Project; and
(ii) general corporate purposes. (collectively referred to herein as the "Objects"). In
addition, our Company expects to receive the benefits of listing of the Equity Shares on
the Stock Exchanges.
IPO EXAMPLE
19. 19
NTPC Limited (Company) enter market with FPO
FPO opens on February 03' 10
India’s largest power generation company NTPC Limited (Company) will
enter the capital markets on February 3, 2010 with its further public offer
(FPO) of 412,273,220 equity shares of Rs 10 at prices to be determined
through an alternative book building process under part D of Schedule XI of
the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009.
The FPO will close on February 5, 2010.
FPO EXAMPLE
20. 20
CONCLUSION
No doubt equity shares have both advantages and disadvantages but
the fact is that equity shares are the most sought financial
instruments for both investment or for speculation.
