Methods of Issue of Shares: Public Issue (IPO and FPO)

A company does not have only one route open to it when it wants to raise fresh share capital. The Companies Act, 2013 and the regulations of the Securities and Exchange Board of India (SEBI) between them recognise several distinct methods of issue — public issue, rights issue, bonus issue, private placement, preferential allotment, an employee stock option scheme, and the issue of sweat equity shares — and a company chooses among them depending on how much it wants to raise, from whom, and how quickly. This section studies the method most people associate with the stock market: the public issue.

Under a public issue, a company invites members of the general investing public at large to subscribe to its shares, through a document called a prospectus. A public issue takes one of two forms depending on the company's own history in the market. An Initial Public Offer (IPO) is the very first offer of shares a company makes to the public — an unlisted company "goes public" through an IPO, and, as a direct consequence of a successful one, its shares get listed on a recognised stock exchange for the first time. A Further Public Offer (FPO), sometimes called a follow-on public offer, is a fresh issue of shares to the public by a company whose shares are already listed — used when an established, already-listed company wants to raise additional capital from the market. Both forms are comprehensively regulated by SEBI, principally through the SEBI (Issue of Capital and Disclosure Requirements) Regulations, and require the company to appoint one or more merchant bankers (acting as lead manager to the issue) who steer the whole exercise, get the issue registered with SEBI, and take responsibili …