Meaning Of Issue Of Shares

The "Issue of shares " is the procedure in which companies allocate new shares to shareholders , who can be either individuals or corporates . To issue shares company follow the rules prescribed in Companies Act 2013 . 
Companies issue shares to raise money from investors who tend to invest their money. After that, companies use this money for the development and growth of their business. A company typically issues two types of shares Equity shares and Preference shares. 



Procedure of issue of shares

A registered company follows the following procedure to collect money from the general public by way of issuing shares:-

Step 1- Issue of prospectus
Step 2- To receive application
Step 3- Allotment of shares
Step 4- To make calls on shares 
Step 5- Issue of share certificate

When a public company intends to raise capital by offering (selling ) its shares to the public, it invites the public through a document called' Prospectus '. After analysing prospectus if the investors are satisfied and interest, they may apply for purchase of shares. Section 39(1) of Companies Act 2013,provide that a company cannot allot any security to the public unless the amount stated in the prospectus as the minimum amount has been subscribed. 
After getting application along with the required amount from investors, company check the applications and after completing necessary formalities shares are allotted. Amount left after payment of application and allotment money is demanded from the investors in different instalments known as calls e. g. ' First Call ' and ' Second Call ' and so on. Generally 'Final' word is added with the last call e. g. Second and final call. 
A share certificate contains two important statements namely:-
1. The member was, at the date of the issue of the certificate, the holder of a certain number of shares. 
2. The extent to which they are paid up, paid up amount of the shares. 


Modes of issue of shares

1. Issue of shares at par 

Issue of shares at par means, to issue the shares at price equal to its face value. For example- if the face value of  shares is ₹ 20 each and they are issued at ₹ 20 each , then this is called issue of shares at par. 

2. Issue of shares at premium

Issue of shares at premium means, to issue shares at higher price than its face value . For example- if the face value of shares is ₹ 20 each and they are issued at ₹ 25 each , then this is called issue of shares at premium. The extra amount is called premium that is ₹ 5 . Premium is the amount that is over and above the face value of shares. Companies which have good reputation, management and have goodwill issue shares at premium. 

Issue of shares at discount

Issue of shares at discount means, to issue shares at lower price than its face value. For example if a share of ₹ 100 each is issued at ₹ 95 , then ₹ 5 is the amount of discount. It is a loss for company. According to section 53 of the Companies Act 2013, except issue of sweat equity shares( section 54) , companies shall not issue shares at discount . 


Conclusion

In conclusion, Issue of Shares is the process in which companies allot new shares to shareholders. Shareholders can be either individuals or corporates. To issue shares, companies follows the rules prescribed by Companies Act 2013 . To raise capital  to start or grow a company, owners and directors of the company issue shares. There are three modes for issue of shares; issue of shares at par, issue of shares at premium and issue of shares at discount. But according to  Companies Act 2013, companies can issue shares only at par and at premium. Companies shall not issue shares at discount except issue of sweat equity shares, because issue of shares at discount is a loss for company. 


Frequently Asked Questions

Question 1. What are the type of shares? 

There are mainly two kinds of shares i.e. Equity shares and Preference shares. Equity shares are also referred as Ordinary shares, it is one of the most common type of shares. 

Question 2. Who issue shares and why? 

Owners and directors of the company may issue shares , to raise funds and to start company or grow for a company. 

Question 3. What is allotment of shares? 

An allotment of shares means issue of new shares by a company in exchange for cash. Allotment of new shares increases the company's share capital. 

Question 4. How many shares are in a company? 

Generally, a start up company has 10,000,000 authorised shares of common stock, but as the company grow, it may increases the total number of  issue shares. 

Question 5. What is the issue of sweat equity shares? 

Issue of sweat equity shares means issue of shares at discount for those who have contributed their time, effort to the company. Companies issue sweat equity shares to reward their employees, directors or other workers for their contributions to the company.