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Shares & Debentures

 Contents
Introduction
Meaning of shares & share capital
Types of share & their advantages & disadvantages
Issue of shares
Meaning of debenture and its types
Real Life IPO & FPO Example
Conclusion
 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.
 Shares & Share Capital
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.
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The Characteristics of a Share

Shares operate under the following characteristics:
•A share should be moveable. The rules for share transfer must be included in the
company's Articles of Incorporation.
•The funds used to purchase a share are non-refundable. This, however, will be
affected by business dissolution or capital reduction.
•Each share must be assigned a number. This helps to track and monitor
individual shares. This requirement, however, is not present in all shareholder
agreements.
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Value of a Share: Each share has a value

expressed in terms of money.
There may be :
(a) Face value: This value is written on the
share certificate and mentioned in the
Memorandum of Association.
(b) Issue price: It is the price at which
company sells its shares.

(c) Market Value: This value of share is

determined by demand and supply forces in
the share market.
6) Rights: A share confers certain rights on
its holder such as right to receive dividend,
right to inspect statutory books, right to
attend shareholders’ meetings, and right to
vote at such meetings, etc.
7) Income: A shareholder is entitled to get a
share in the net profit of the company. It is
called dividend.
 Types of Share
The shares which are issued by companies are of two types:

 Equity Shares
 Preference Shares
 Equity Shares
Traded on stock exchange

Get dividend after preference shareholders & debenture holders

Dividend is not at all fixed. Depends on the profits made by the

company.

The BOD decides: to give or not and if yes, how much

Equity shareholders have the right to vote on any resolution placed

before the company.
ADVANTAGES of Equity Shares:
 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.

DISADVANTAGES of Equity Shares:

 High Risk.
 In worst cases less privilege given to equity share holders.
 Preference Shares
Higher claim on the assets and earnings of the company
than the equity shares.

Market instrument issued by the companies to raise the

capital.

Have characteristics of both equity shares and debentures.

Fixed rate of dividends are paid irrespective of the profits

earned.
Pros of Preference Shares:
 Fixed dividend
Preference over equity
Hybrid instrument having some of the characteristics of
debentures and equity shares.

Cons of Preference Shares:

 No voting rights.
 No extra bonus.
Types of Preference Shares
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1) Convertible Preference Shares: The preference shares which can
be converted into equity shares at the option of the holders after a
fixed period according to the terms and conditions of their issue.

2) Non-Convertible Preference shares: The preference shares which

are not convertible into equity shares.

3) Redeemable Preference Shares: The preference shares, which

can be redeemed or repaid after the expiry of a fixed period or
after giving the prescribed notice as desired by the company.
Terms of redemption are announced at the time of issue of such
shares.

4) Non-Redeemable Preference shares: The preference shares,

which cannot be redeemed during the life time of the company.
The amount of such shares is paid at the liquidation of the
company.
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5) Cumulative Preference Shares: The unpaid dividends on

preference shares are treated as arrears and are carried forward
to subsequent years.

6) Non-Cumulative Preference Shares: The preference shares that

have right to get fixed rate of dividend out of profits of current
year only.

7) Participating Preference Shares: The preference shares that have

right to participate in any surplus profit of the company after
paying the equity shareholders, in addition to the fixed rate of
their dividend.

8) Non-Participating Preference Shares: the Preference shares

which have no right to participate on the surplus profit or in any
surplus on liquidation of the company.
 Issue of Shares
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Detail of a Company & Shares in Prospectus.

Prospectus
 90 % application is necessary

 If access application received then company issue

Application
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
Allotment
installments also (calls)

 share of the company may be issued in any of the

following three ways:
Repayment/
dividend
1. At par;
2. At premium; and
3. At discount.
 Issue of shares for consideration other than cash 16
(For example: issue of shares to vendors, to promoters etc.)

 Forfeiture of shares

 Buy – Back of Shares

 Right Shares

 Redemption of preference shares/ Debenture

 Debentures
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.
 Types Of Debentures
 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

ADVANTAGES of Debentures:
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 of Debentures:
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.
 IPO Example
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 -

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.
Listed at
BSE, NSE
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 FPO Example
NTPC Limited (Company) enter market with FPO
FPO opens on February 03' 10

India’s largest power generation company NTPC Limited (Company) entered

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
closed on February 5, 2010.
 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.

THANK