Newly Issued Shares

#1

How is New shares Issued by a company ?

Consider a person owns 100 percent of a company and he wants to raise capital by IPO. Since the Owner owns 100 percent of company how does company issue new shares to raise capital ? Whatever the promoter sells is by OFS and only he receives the proceeds. Please help clarify the concept of newly issued shares.

#2

When company issue shares be it at face value or at premium it is fresh issue of equity shares and money goes into company but as per your example if a person owns 100 percent of a company and he sells the share in order to list the company , it is offer for sale and the money goes in his hand.
there are many cases of IPO where some part of it was fresh equity issue and some part was OFS.

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#3

What if person owning 100 percent of company wants to use ipo proceeds to fund the company .
In that case will the authorised share capital of company would have to be increased?

#4

As i understand there must be some equity with the company by way of subscribed capital and if not than it can be made by increasing authorised capital and launching an ipo.

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#5

Yes I understand that. But I don’t understand how the New shares are Issued by the company ? What is the basic concept how creating new shares

#6

Technically if a person owns 100% of a company he cannot issue new shares, since shares are basically ownership of the company. He can issue debt though but if he has to issue new shares it can be done only at the expenses of giving up a portion of ownership.

E.g. if he wants to sell 15% of equity stake i.e. ownership, after issuing shares to public he will be left with 85% ownership

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#7

I think to introduce an IPO Company must be a Public Limited company. And To incorporate a limited company a minimum of 3 directors and 7 shareholders are required over the age of 18 years with atleast one person being an Indian citizen and resident.

So, accordingly, there will not be a person who has 100% company stack.

Also, there are lots of rules and regulations, compliance, etc. to follow in order to introduce an IPO.

#8

I understand that part. Consider 5 Shareholders hold 20% each. Still how is the New shares are issued by company ? There is some Concept i’m missing out. I just want to understand the prcoess.

#9

if 5 shareholders are holding 20% each of a company than the share can be listed by(1) way of offer for sale OR(2) if there is a provision to increase authorized capital ,it can be through public issue whereby company will increase capital thus all these 5 shareholders will continue to retain exactly same quantity of shares but percentage wise it will reduce.
in first case entire money will go to these 5 shareholders and the company will not get anything wherein in second case the entire money will come to company .

#10

In case of Split / Change the Face Value of Share the number of shares will be changed.

#11

Thank You

#12

I think that calculation in the case of new share issuance is very simple. Total amount of capital is divided by total number of shares. If owner had 100% shares and make new issuance where other investor made purchase, it is logical that old investor cannot hold 100% of shares anymore