Raising of Funds from Equity and Procedural Aspects - Public Funding: formula sheet

Key formulas

Rights offer to existing holders (s.62(1)(a))

Offer to equity holders in proportion to paid-up share capital, by notice specifying number of shares

The notice must give a time of not less than fifteen days (or such lesser number as prescribed) and not more than thirty days from the date of the offer. If not accepted within it, the offer is deemed declined.

Right of renunciation

Offer deemed to include right to renounce in favour of any other person, unless articles provide otherwise

The notice must contain a statement of this right.

Dispatch of rights notice (s.62(2))

Dispatch at least 3 days before the opening of the issue

Mode: registered post, speed post, electronic mode, courier or any other mode with proof of delivery, to all existing shareholders.

Disposal of unaccepted shares (s.62(1)(a)(iii))

Board may dispose of them in a manner not disadvantageous to the shareholders and the company

This applies after the time expires or on earlier intimation of decline.

Further issue to any persons (s.62(1)(c))

Special resolution + price fixed by registered valuer's report

Applies for cash or for consideration other than cash. Chapter III and prescribed conditions must be complied with.

ESOP route (s.62(1)(b))

Special resolution + prescribed conditions

Shares go to employees under an employees' stock option scheme.

Convertible debenture or loan option (s.62(3))

Conversion option exempt from s.62 if terms approved by special resolution before issue of debentures or raising of loan

The approval must come before the debentures are issued or the loan is raised.

Producer company share capital (s.378ZB)

Share capital consists of equity shares only; holding as far as may be in proportion to patronage

Unlike an ordinary company, no preference shares.

Authority for offering shares to any persons

Special resolution + price fixed by registered valuer's report (where the issue is under section 62(1)(c))

Section 62(1)(c) allows an offer to any persons if authorised by a special resolution and the price is determined by a registered valuer's report, with compliance with Chapter III and prescribed conditions.

Rights offer timing

Offer open 15 to 30 days (or a lesser prescribed period); notice sent at least 3 days before the issue opens

Section 62(1)(a)(i) and 62(2). This applies when shares are offered to existing equity holders first; do not confuse it with a public issue timetable.

Securities premium

Securities premium account = aggregate premium received on shares issued

Section 52(1). Its use is limited to the purposes in section 52(2), such as bonus shares, writing off preliminary or issue expenses, premium on redemption, and buy-back under section 68.

Main board eligibility routes

Track-record route OR book-building route with a minimum QIB allocation, and no bar on issuer, promoters or directors

State the routes and the disqualifications in words. Quote exact numeric limits only from the current ICDR text you have studied.

Pre-issue checklist

Eligibility → approvals → intermediaries → demat arrangements → draft offer document to SEBI

Use this order to structure every answer.

Rights offer period (Section 62(1)(a)(i))

Offer open for ≥ 15 days (or such lesser number of days as may be prescribed) and ≤ 30 days

If not accepted within the time, the offer is deemed declined.

Renunciation (Section 62(1)(a)(ii))

Right to renounce is deemed included unless the articles otherwise provide

The notice must state this right.

Dispatch of offer notice (Section 62(2))

Notice sent to all existing shareholders at least 3 days before the issue opens, by registered post, speed post, electronic mode, courier or any other mode having proof of delivery

Section 62(2) allows any of these modes. The proof-of-delivery requirement attaches to 'any other mode'.

Other routes under Section 62(1)

Employees: ESOP with special resolution | Any persons: special resolution + registered valuer's price

Clause (c) covers cash or consideration other than cash.

Producer company formation (Section 378C)

≥ 10 individual producers, or ≥ 2 Producer Institutions, or a combination of ≥ 10 individuals and Producer Institutions

Registrar registers within 30 days of receiving the documents. Liability is limited by shares.

Producer company status (Section 378C(5))

Treated as a private company, with no limit on members, and never a public company

The Act says it shall not, under any circumstance, become or be deemed to become a public limited company.

Mutual assistance principles (Section 378G(2))

Voluntary membership | One member, one vote | Board accountable to members | Limited return on share capital | Equitable distribution of surplus | Education of members | Cooperation with other producer companies

These seven must appear in the articles.

General meeting after registration (Section 378G(3)(o))

Memorandum and articles laid before a special general meeting within 90 days of registration

Articles must provide for this.

Public offer routes (s.23)

Public company: public offer by prospectus, private placement, rights issue or bonus issue

A private company can use only rights issue, bonus issue or private placement. It cannot make a public offer.

Red herring prospectus filing (s.32(2))

File with Registrar at least 3 days before the subscription list and offer open

It is a prospectus without complete particulars of quantum or price. It carries the same obligations as a prospectus.

After closing of the offer (s.32(4))

File prospectus with Registrar and SEBI stating total capital raised, closing price and other details not in the RHP

Variations from the RHP must be highlighted as variations in the prospectus.

Shelf prospectus (s.31)

Validity: not more than 1 year, from the date of opening of the first offer

An information memorandum is filed before a second or later offer. Memorandum plus shelf prospectus is deemed a prospectus.

Withdrawal after change (s.31(2) proviso)

Refund of subscription within 15 days if applicant withdraws after being told of changes

Applies where advance payments were received before the change.

Application form (s.33)

Application form must be accompanied by an abridged prospectus. Penalty: ₹50,000 for each default

Exceptions: bona fide invitation to underwrite, or securities not offered to the public.

Offer for sale deemed prospectus (s.25(2))

Evidence of sale 'with a view' to public offer if offer is made within 6 months of allotment, or full consideration was not received

This is evidence unless the contrary is proved.

Fixed price issue

Issue price = single price disclosed in the offer document before opening

No price discovery. Investors know the exact price when they apply.

Book building issue

Floor price ≤ Issue price ≤ Cap price (price band)

The final price is discovered from the bids after the book closes. It falls within the disclosed band.

Cut-off price bid

Bid at cut-off = willing to pay the final issue price, whatever it is within the band

Allowed only for retail individual investors under ICDR. Others must bid at a specific price in the band.

Anchor investor allocation

Anchor portion is allotted before the issue opens, at a price within the band, to qualified institutional buyers

Take the portion size, minimum bid, number of investors and lock-in from the current ICDR Regulations. Do not rely on memory of old figures.

Securities premium

Securities premium = (Issue price − Face value) × Number of shares allotted

Section 52 requires the premium received to be transferred to the securities premium account.

Weighted demand at a price (book)

Cumulative demand at a price = Σ of bids at that price and at all higher prices

Used to find the highest price at which the whole issue size is covered.

Minimum subscription condition

Allotment allowed only if: minimum amount stated in prospectus subscribed AND application sums received

Section 39(1). Applies to securities offered to the public for subscription.

Minimum application money

Application money ≥ 5% of nominal amount (or other percentage/amount specified by SEBI)

Section 39(2). Example: ₹10 share, application money at least ₹0.50 unless SEBI specifies otherwise.

Refund trigger

Minimum not subscribed within 30 days of prospectus issue (or SEBI period) → return money

Section 39(3). Money is returned in the time and manner prescribed.

Return of allotment

Company making any allotment → file return of allotment with Registrar

Section 39(4). The prescribed manner and time are in the Rules.

Penalty for default under Section 39(3) or (4)

₹1,000 per day of default or ₹1,00,000, whichever is less

Section 39(5). Applies to the company and every officer in default.

Listing permission

Apply to recognised stock exchange(s) BEFORE making the public offer

Section 40(1). The prospectus must name the exchange(s) where the application is made (Section 40(2)).

Use of application money

Separate account in a scheduled bank; use only for allotment adjustment or repayment

Section 40(3). Allotment adjustment is allowed only where the exchange has permitted dealing.

Penalty for default under Section 40

Company: fine ₹5,00,000 to ₹50,00,000. Officer in default: fine ₹50,000 to ₹3,00,000

Section 40(5). Imprisonment was removed by Act 29 of 2020.

Proportionate allotment in oversubscription

Shares to allot to a category = Shares available ÷ Shares applied × Shares applied by the applicant

Working rule for a basis of allotment. SEBI's ICDR rules set the category-wise method and marketable lots.

Public offer under the Act

Public company may issue securities to the public through prospectus: section 23(1)(a)

This covers IPO and FPO. The Explanation to section 23 includes further public offer and offer for sale through a prospectus.

Rights and bonus issues

Public company: section 23(1)(c). Private company: section 23(2)(a)

A listed company, or one intending to list, must also comply with SEBI law.

Offer for sale document

Offer for sale document = deemed prospectus of the company: section 28(2)

Prospectus content rules and liability for mis-statements apply. Selling members reimburse the company's expenses under section 28(3).

Who gets the money

FPO and rights issue: company. OFS: selling shareholders.

OFS creates no new shares and does not raise capital for the company.

Private placement limit and QIBs

Identified persons not more than 50 (or higher number prescribed) in a financial year, excluding QIBs and ESOP employees: section 42(2)

Useful to contrast QIBs, who are excluded from the count, with the general public.

Deemed public offer

Offer to more than the prescribed number of persons is deemed an offer to the public: section 42(3) Explanation III and section 42(11)

A private placement made in breach of section 42(2) is deemed a public offer.

Exchange permission before public offer

Public offer → apply to recognised stock exchange(s) first → obtain permission → then offer (Section 40(1))

Mandatory for every company making a public offer. The prospectus must name the exchange(s) where the application has been made (Section 40(2)).

Application money rule

Application money → separate account in a scheduled bank; use only for (a) adjustment against allotment, or (b) refund within SEBI-specified time (Section 40(3))

Use (a) only where securities are permitted to be dealt with on the exchange named in the prospectus.

Waiver is void

Any condition making an applicant waive Section 40 compliance is void (Section 40(4))

Investors cannot be made to give up these protections.

Penalty for default under Section 40

Company: fine ₹5,00,000 to ₹50,00,000. Officer in default: fine ₹50,000 to ₹3,00,000 (Section 40(5))

Imprisonment for officers was removed with effect from 21-12-2020.

Application form and abridged prospectus

No application form issued unless accompanied by an abridged prospectus (Section 33(1)); penalty ₹50,000 for each default (Section 33(3))

Exceptions: bona fide invitation to enter into an underwriting agreement, or securities not offered to the public. A full prospectus copy must be furnished on request before the closing of the subscription list (Section 33(2)).

Who may issue to the public

Public company: public offer, private placement, rights or bonus issue. Private company: rights or bonus issue, or private placement only (Section 23)

A private company cannot make a public offer.

Quick revision

• Share capital of a company limited by shares is of two kinds: equity and preference (section 43).
• Equity share capital means all share capital that is not preference share capital.
• A public company can issue securities by public offer, private placement, rights issue or bonus issue (section 23).
• A private company can use rights issue, bonus issue or private placement, not a public offer.
• Rights offer goes to existing equity holders in proportion to their paid-up capital.
• Rights offer notice must give a period of at least fifteen days (or a lesser prescribed number) and at most thirty days.
• Unless the articles say otherwise, the right to renounce shares offered is deemed included, and the notice must say so.
• The rights notice must be sent by a mode with proof of delivery at least three days before the issue opens.
• Shares offered to any persons need a special resolution and a registered valuer's price report.
• Employee stock option issues need a special resolution.
• Debenture or loan conversion options approved earlier by special resolution fall outside the rights rule in section 62.

Common mistakes

• Treating equity as having a fixed dividend or fixed repayment date. Fix: Remember that equity is residual: dividend is discretionary and capital is not repaid during the company's life.
• Confusing authorised, issued, subscribed and paid-up capital. Fix: Think of a funnel: authorised is widest, then issued, subscribed and paid-up.
• Applying the rights issue timeline of 15 to 30 days to a public issue. Fix: Remember that clause (a) covers offers to existing equity holders. A public issue is governed by the ICDR timetable and the offer document.
• Writing exact eligibility figures from memory without checking. Fix: Revise the figures from the latest ICDR text and the ICSI study material. If unsure, explain the test in words and say it is as prescribed.
• Saying the articles can override the Companies Act. Fix: State that any clause conflicting with the Act is void to that extent. The articles can vary a rule only where the Act allows it, as in 'unless the articles otherwise provide'. They may also add stricter conditions.
• Stating the rights offer period as exactly 15 days or 30 days. Fix: Write the range: not less than 15 days (or such lesser number as may be prescribed) and not more than 30 days.
• Treating the draft offer document and the red herring prospectus as the same thing. Fix: The draft goes to SEBI for observations before the issue. The RHP is filed with the Registrar at least 3 days before opening and carries the same obligations as a prospectus.
• Saying the RHP is filed with SEBI under section 32. Fix: Section 32(2) requires filing the RHP with the Registrar. Section 32(4) requires the final prospectus to be filed with both the Registrar and SEBI.
• Saying the price in book building is fixed by the company alone. Fix: Write that the company discloses a band and the final price is discovered from bids within it.
• Allowing every investor to bid at cut-off price. Fix: State that the cut-off option is for retail individual investors only. Other categories bid at a specific price.

Exam tips

• Quote section 62 by clause: (a) rights, (b) employees, (c) any persons. Examiners reward this precision.
• Always give both limits of the rights-offer period and the three-day dispatch rule.
• Use the case pattern: provision, facts, conclusion, then one drafting or compliance step.
• For features, give five clear points rather than a long paragraph.
• Link public routes to the chapter on public issue and private routes to private placement, and avoid mixing their rules.
• Structure every answer as eligibility, authority and machinery. Examiners reward a clear frame.
• Quote section 62(1)(c) accurately when the question mentions shares offered to any persons.
• Use the facts in the question to give a firm yes or no on eligibility, not a general essay.