Q.What is a public issue of shares? Distinguish between an Initial Public Offer (IPO) and a Further Public Offer (FPO).

A public issue is the route through which a company reaches the general investing public directly, and it comes in two distinct forms depending on the company's own listing history.

Both are regulated by SEBI and require a registered merchant banker to manage the issue.

A public issue is a method of issuing shares under which a company invites members of the general investing public at large to subscribe to its shares, through a formal disclosure document called a prospectus. It is the most heavily regulated method of issue precisely because it draws money from the ordinary public rather than from a known, identified group, and SEBI's Issue of Capital and Disclosure Requirements Regulations govern nearly every aspect of it — from who may manage the issue to what the prospectus must disclose. A company making a public issue must appoint one or more merchant bankers to act as lead manager, and may additionally appoint underwriters, who agree, for a commission, to subscribe to whatever portion of the issue the public itself does not take up, guaranteeing the company the capital it needs.

A public issue takes one of two forms. An Initial Public Offer (IPO) is the very first offer of shares a company makes to the public — before an IPO, the company is unlisted, known only to its promoters and a closed circle of private investors, and a successful IPO both raises fresh capital and gets the company's shares listed on a recognised stock exchange for the very first time. A Further Public Offer (FPO), sometimes called a follow-on public offer, is a fresh, subsequent issue of shares to the public made by a company that is already listed — used when an established company, having already gone public once, wants to raise further capital from the market. The practical difference an examiner is looking for is this: an IPO changes a company's status from unlisted to listed, while an FPO is simply one listed company raising more capital the same public way it did before.

A frequent error is treating 'IPO' as a synonym for any public issue at all; it specifically denotes the FIRST one. Students also sometimes state that an FPO is made only by 'old' companies without noting the real distinguishing fact — that the company is already listed, however recently.