CS Professional · Strategic Management and Corporate Finance
Raising of Funds from Equity: Public Funding Procedure
This chapter covers how a company raises equity from the public: the kinds of equity capital, eligibility, the articles, the IPO process, pricing, allotment, listing, and routes such as further public offer and rights issue. To solve questions, identify the route, apply the provision to the facts, then conclude with the compliance steps.
What this chapter covers
This chapter deals with equity funding from outside the company. It begins with what equity share capital is and where equity can come from. It then follows the life of a public issue: eligibility, the articles, the offer document, pricing, allotment, listing and what the company must do after listing. It ends with other routes, such as further public offer and rights issue, and with the intermediaries and regulators who make the process work.
The law behind it is mainly the Companies Act, 2013 and the SEBI regulations on issue of capital and disclosure. Under the Act, a public company may issue securities to the public through a prospectus, through private placement, or through a rights issue or bonus issue (section 23). A private company cannot make a public offer. It may use a rights issue, bonus issue or private placement. Section 43 tells you the two kinds of share capital: equity and preference.
This chapter sits in the Corporate Finance part of Paper 5, which carries 60 marks. It links to the sources of finance, cost of capital and capital structure topics. A good answer here shows both the finance logic (why equity, at what price) and the procedure (who does what, in what order).
Paper 5 is a written, case-based paper, and Corporate Finance is the larger part of it at 60 marks. This chapter is procedural, so marks go to students who can state the rule, apply it to the facts and list the steps in order. Many questions are scenario-based: a company wants to raise funds, and you must pick the route and explain the compliance. If you learn the sequence once, you can reuse it across several question types. It also supports other papers where issue of securities and listing come up.
Raising of Funds from Equity and Procedural Aspects - Public Funding: topics in the order to study them
- 1Equity Share Capital and Sources of Equity FundingStart with what equity is and the two kinds of share capital in section 43, because every later topic builds on these terms.
- 2Eligibility and Pre-Issue Requirements for Public IssueBefore any offer, you must know who can issue and what must be in place, so this comes first in the process.
- 3Articles of Association and Public Issue ProvisionsThe articles must permit the issue and its terms, so check them right after eligibility.
- 4Initial Public Offer Process and Offer DocumentWith the pre-conditions clear, you can follow the IPO steps and the contents of the offer document.
- 5Pricing: Fixed Price and Book BuildingPricing is part of the offer; study it once the process is familiar, and practise the numerical examples.
- 6Allotment, Listing and Post-Issue CompliancesThis is the end of the issue cycle: allotment, listing and what the company must do afterwards.
- 7Further Public Offer, Rights Issue and Other Equity RoutesCompare other routes against the IPO you now know, including the rights issue rules in section 62.
- 8Role of Intermediaries and RegulatorsFinish by tying together who does what across the whole process, which also helps in writing answers.
How to prepare Raising of Funds from Equity and Procedural Aspects - Public Funding
Treat this chapter as a process you can walk through from start to finish, with a few rules and numbers attached to each stage.
- Read section 43 and section 23 first and note which company can use which route.
- Draw a one-page flow of a public issue from board decision to listing. Add the key documents at each stage.
- Learn rights issue rules from section 62: the offer goes to existing equity holders in proportion to paid-up capital, the notice must give a time of not less than fifteen days (or a lesser prescribed number) and not more than thirty days, and shares can be renounced unless the articles say otherwise.
- Know the other limbs of section 62: issue to employees under a stock option scheme by special resolution, and issue to any persons by special resolution at a price fixed by a registered valuer's report.
- Practise pricing: solve fixed price and book building examples with the cut-off price and demand at each price level.
- Check the current SEBI regulations for exact eligibility, timelines and disclosure items, and keep a short list of them.
- Write two or three case answers in the form: provision, facts, conclusion, then compliance steps.
Common mistakes in Raising of Funds from Equity and Procedural Aspects - Public Funding
Saying a private company can make a public offer.
Fix: Link each route to company type using section 23: public offer is for public companies only.
Mixing up the rights issue time limits, such as giving a fixed 30 days or 15 days as the only period.
Fix: State it as not less than fifteen days (or such lesser number as prescribed) and not more than thirty days.
Forgetting that a rights issue is not the only way to issue further shares.
Fix: Remember its three limbs: existing equity holders, employees under a stock option scheme, and any persons by special resolution.
Writing the IPO steps out of order.
Fix: Learn the logic: approvals and eligibility, documents, offer, pricing, allotment, listing, then post-issue compliance.
Giving general theory without applying it to the facts in a case.
Fix: Quote the rule briefly, apply it to the figures and names given, and end with a clear conclusion.
Relying on old SEBI limits and timelines from memory.
Fix: Verify numbers against the current regulations before the exam and revise from one updated list.
Last-day revision: Raising of Funds from Equity and Procedural Aspects - Public Funding
- 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.
Raising of Funds from Equity and Procedural Aspects - Public Funding practice questions
- Shareholders of Kaveri Foods Ltd. allot themselves shares and, three months later, offer those shares to the public through a document. Unde…
- Arvind Pharma Ltd, an unlisted public company, wants to issue shares for a non-cash consideration (acquiring a patent) to a technology partn…
- Under the Companies Act, 2013, which of the following correctly describes the expression 'public offer' for the purposes of the Chapter on p…
- Arjun Engineering Ltd sends a rights offer notice to its shareholders. Which statement about the offer period under Section 62(1)(a)(i) is c…
- Kaveri Power Ltd issued debentures with a term allowing conversion into equity shares. Which condition exempts such conversion from the righ…
- Sunrise Textiles Ltd is making an IPO. Which function is performed by the Registrar to the issue?
- Under the Companies Act, 2013, a public company wishes to raise equity by offering shares to its existing equity shareholders in proportion …
- Under the Companies Act, 2013 as given, a company issuing sweat equity shares which are listed on a recognised stock exchange must comply wi…
Raising of Funds from Equity and Procedural Aspects - Public Funding in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Raising of Funds from Equity and Procedural Aspects - Public Funding: frequently asked questions
Is this chapter theory or numerical?
It is mostly procedural, with some numerical work in pricing, especially book building. Expect case-based questions that need both the rule and the steps.
Can a private company raise equity from the public?
No. Under section 23, a private company may issue securities by rights issue, bonus issue or private placement. A public offer through a prospectus is for public companies.
Does a rights issue always need a special resolution?
No. Under section 62(1)(a), the offer to existing equity holders follows the conditions in that clause. A special resolution is needed for issues to employees under a stock option scheme and for issues to any persons under clause (c).
How should I answer a case question on this chapter?
State the relevant provision, apply it to the facts, then give your conclusion. Add the practical compliance steps, such as notices, resolutions and filings, to earn extra marks.