3.2 Who Can Issue Shares?
ISSUANCE OF SHARES
- Any Indian company may make an initial public offer, if:
- it has net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each), of which not more than fifty per cent. are held in monetary assets.
- it has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years.
- it has a net worth of at least one crore rupees in each of the preceding three full years.
- the aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year.
- if it has changed its name within the last one year, at least fifty percent. of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name.
- An issuer not satisfying any of the conditions stipulated in sub-regulation in above point no.1 may make an initial public offer if:
- (i) the issue is made through the book building process and the issuer undertakes to allot at least fifty per cent. of the net offer to public to qualified institutional ; or
(ii) at least fifteen per cent. of the cost of the project is contributed by scheduled commercial banks or public financial institutions, of which not less than ten per cent. Shall come from the appraisers and the issuer undertakes to allot at least ten percent of the net offer to public to qualified institutional buyers;
- (i) the minimum post-issue face value capital of the issuer is ten crore rupees; or
(ii) the issuer undertakes to provide market-making for at least two years from the date of listing of the specified securities.
- An issuer may make an initial public off er of convertible debt instruments without making a prior public issue of its equity shares and listing thereof.
- An issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand.
A due diligence study may be conducted by an independent team of chartered accountants or merchant bankers appointed by the stock exchange, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months. The project for which the company is raising funds has to be appraised by a public financial institution or a scheduled commercial bank. The appraising agency should also participate to a minimum extent of 10 per cent of the project cost. A new company has to compulsorily issue shares at par, while companies with a track record can issue shares at a premium. Before the advent of SEBI (Securities Exchange Board of India) the prices of shares were valued as per the guidelines issued by the Controller of Capital Issues (CCI).