Secretarial Practice · Ch 3 — Issue of Shares
Distinction: Rights Issue and Bonus Issue, Public Issue and Private Placement, Premium and Discount
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Distinction: Rights Issue and Bonus Issue, Public Issue and Private Placement, Premium and Discount
Bringing together the chapter's principal comparisons in one place makes a distinguish-type question far easier to answer accurately, since these three pairs are among the most frequently tested contrasts in the Maharashtra HSC Secretarial Practice examination.
Rights Issue and Bonus Issue
| Basis | Rights Issue | Bonus Issue |
|---|---|---|
| Governing section | Section 62(1)(a), Companies Act, 2013 | Section 63, Companies Act, 2013 |
| Source of shares issued | Fresh capital, paid for by the shareholder | Capitalisation of the company's own free reserves / securities premium / capital redemption reserve |
| Cost to the shareholder | Shareholder pays the offer price (usually below market price) | Free of cost |
| Purpose | To raise additional funds for the company | To reward existing shareholders and capitalise accumulated profit, without raising fresh money |
| Can the offer be declined/renounced? | Yes — renounceable in favour of another person unless the Articles provide otherwise | No — a fixed number of shares is simply allotted; there is nothing to renounce |
| Effect on paid-up capital | Increases paid-up capital and brings in fresh cash | Increases paid-up capital with no fresh cash inflow at all |
Public Issue and Private Placement
| Basis | Public Issue | Private Placement |
|---|---|---|
| Governing provision | SEBI (ICDR) Regulations, read with the Companies Act, 2013 | Section 42, Companies Act, 2013 |
| Offered to | The general investing public at large | A select, identified group, not exceeding 200 persons in a financial year |
| Disclosure document | A full prospectus, filed with SEBI, stock exchanges and the ROC | A private placement offer letter, addressed only to the identified offerees |
| Advertisement | Permitted, and normal practice | Expressly prohibited — no public advertisement or media may be used |
| Cost and time | Relatively expensive and time-consuming (merchant bankers, underwriters, listing formalities) | Comparatively quick and inexpensive |
| Listing consequence | Typically results in (or adds to) a stock-exchange listing | Does not, by itself, require or result in listing |
Issue at a Premium and Issue at a Discount
| Basis | Issue at a Premium | Issue at a Discount |
|---|---|---|
| Meaning | Issue price is higher than face value | Issue price is lower than face value |
| Legal position | Fully permitted, no upper limit prescribed | Prohibited under Section 53; any such share is void, except a sweat equity share under Section 54 |