Companies generate funds from public and other options by issuing the shares. The fund is beneficial as the company does not have to pay the interest as in case of loans. Only dividend is to be distributed depending upon the profits. The different ways of issuing shares have its own benefits. You should know about the types and the fundamentals behind them as an investor.
The different types of shares issues is based upon the who are the perspective investors, purpose of the company like to generate funds or for the benefit of its shareholders. The different types of shares issues in India are as shown in the picture. Let us see them how they differ from each other.
Public Issue: When the issue is for the general public and anyone interested in to invest in the company can buy the shares. It can be further of two types as follows:
- Initial Public Offer (IPO): When an unlisted company wants to go public for the first time, it can be done through Initial Public Offer. Here, the investors bid for the company within a band (generally given by the company). The bidding value depends upon the valuation of the company. IPO helps the company to get listed and generate funds from public. Sometimes, IPO is riskier than other stocks investment as the small investors are not able to evaluate the correct bid rate. So, the stock price decline (may also appreciate) just after the final issue.
- Further Public Offer (FPO): Here the already listed company generate the funds from the public (anyone interested) for few projects, expansion etc.
Rights Issue: The listed company issues the securities only to the existing shareholders of its company. It is based on the ratio in which the shareholders are holding number of shares on any fixed date. Generally, the rights issue are on the discounted rate and are beneficial for the shareholders, So, they prefer to invest.
Bonus Issue: The shares given to the existing shareholders only without any consideration from them. These are issued on a fixed date based on the ratio to the number on shares held by the shareholder.
Private Placement: Here the company issues the securities to the selected group of investors not exceeding more than 49. It can be done in two ways as follows:
- Preferential Issue: The listed company issues the equity shares which have some more benefits over the normal equity shares like in terms of dividends etc. These benefits are mentioned at the time of issue. These are done as per Chapter XIII of SEBI (DIP) guidelines.
- Qualified Institutional Placement (QIP): Here, the listed company issues equity shares or shares convertible into equity shares to Qualified Institutional Buyers only as per Chapter XIIIA of SEBI (DIP) guidelines.
ALSO READ : Types Of Preferred Stocks?
Employee Stock Option Plan (ESOPs): These are a special kind of stock options which are issued only to the employees of the company. The shares are issued at a discounted price and many have cash benefits also. This is done to develop the interest of the employees as the stakeholders of the company for its well being. This plan have the tax benefits for the employees. And the employee can hold the shares only till retirement or till the person is employee of the company.
Dividends are paid by the company to all his shareholders based upon the bottom line profit. The normal shares issued by any mode is eligible for the dividends. The dividend is calculated as dividend per share. It can be either in the electronic form or voucher can be mailed to the investors. The tax is paid by the company when the dividend is distributed. Further, the dividend is exempt for the investors. The vouchers give the complete details of the tax and dividends.