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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.

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Ú 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.
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The shares which are issued by companies are of two

types:

‡ Equity Shares
‡ Preference Shares


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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. £
 

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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

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One more classification of shares is given by one of the most

successful and respected investor all around the world Peter
Lynch. Úccording to him the shares can be classified into 6
types:

‡ Slow Growers
‡ Fast Growers
‡ Stalwarts
‡ Cyclical
‡ Turn-around
‡ Ússet plays

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‡ 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)

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‡ High Risk
‡ In worst cases less privilege given to equity share holders.


 



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.

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‡ Cumulative & Non cumulative shares

‡ Redeemable & Non-redeemable

‡ Convertible & Non-convertible shares

‡ Participating and non-participating

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‡ These yield fixed rate of returns
‡ It¶s a hybrid instrument having some of the characteristics of
debentures and equity shares.

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‡ 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.

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   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. Út par;
 

! 2. Út premium; and
 
3. Út discount.

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  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

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  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

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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.

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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.

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