Question

• Describe the process for the issue of ordinary shares and preference shares.?

Answer 1

Answer:-

The ordinary shares are generally issued by the Initial public offering (IPO) and Follow-on public offering (FPO).

The IPO is the launch of the shares in stock markets issued to public. The IPO is taking place when the private company goes public. IPO is generally carried by book building process. IPO is carried by investment banks when the bidding process takes place at a certain range of issue price. When these bids are quoted by  many individuals and corporations the issue is subscribed. The IPO issue price is later decided depending on the expressions of interest ie. whether the issue is oversubscribed or undersubscribed by the individuals. The completion of the process of listing takes place at a certain date when the stocks are listed and the trading starts.These IPO process is generally preferred when the company is looking to raise funds for expansion or to par some debt.

The FPO process is done when the company's stocks are already listed in the stock markets and the company wants to issue subsequent shares second or third time. The FPO process is carried by companies to diversify its equity base.

The issue of preference shares is done by calling a board meeting followed by drafting a board resolution and drafting explanatory statement to board resolution and holding a board meeting and finally signed by the managing director.

Preference shares are alternative for risk-averse investors who do not want to participate in equity shares. Preference shares are less volatile than ordinary equity shares and offer investors a consistent pay of dividends.

Preference shareholders have more priority than equity or common share holders. The preference share holders are entitled for fixed amount of dividends whereas the equity shareholders may or may not be paid dividends.

There four types of preferred stock are cumulative, non-cumulative, participating and convertible.