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 Raising Capital refers to obtaining capital from investors or venture capital resources. A company being a separate legal entity does have resources of its own expect the members who have incorporated it or have subsequently acquired the membership of a company would invest in the business. The Company being an entity on its own can also borrow from various sources like the banks, financial institutions, debentures, etc.

 

Modes of Raising Capital

 Chapter Third of Companies Act 2013, covers two major modes of raising capital in the company i.e. public offer and private placement. Part 1 deals with the procedural aspects relating to public offer which include registration of prospectus, disclosures, remedy against mis-statement in prospectus, civil/criminal liabilities of directors, penalty for fraudulent inducement to purchase securities etc. Part 2 deals with private placement.

 

  Section 23 (1) A public company may issue securities- (a) to public through IPO (Initial Public Offer) where the securities are offered for first time or FPO (Further Public Offer); or (b) through private placement by complying with the provisions of Part II of this Chapter; or (c) There is one more method for issuing securities through bonus issue or right issue according to the provisions of the act.

 (2) A private company may issue securities – (a) through private placement process (b) through the bonus issue and right issue according to provisions of the act.

A private company cannot issue securities through IPO or FPO.

 

 

Fund raising by Public Company –

 

·        Public Offer through prospectus i.e. Initial Public Offer (IPO), Further Public Offer (FPO).

·        Private placement

·        Rights Issue

·        Bonus Issue

 

Fund raising by Private Company-

 

·        Private placement

·        Rights Issue

·        Bonus Issue

 

In case of a listed Company or a company which intends to get its securities listed fund raising can be done also in accordance with the provisions of the Securities and Exchange Board of India Act,1992 and the rules and regulations made there under.

 

 

 

 

Public Offer: Chapter III and the ICDR Regulations deal with Public Offer, which is a means of raising capital, reserved only for a public company. The first time a company offers the general stock to the people is called Initial Public Offer (IPO) according to the provisions or an offer for sale where the existing shareholders including the promoters may participate.

 

A company who wants to raise fund through public offer should adhere to the provisions set out in the ICDR Regulations, file a draft prospectus through a merchant banker, filed a red herring prospectus with the ROC based on the observations made by SEBI. The sale price of the equity shares is determined by a book-building process that is run by the merchant banker and after that finalized by the Company.

When a company makes a further issuance of shares through a public offer post the IPO, it is known as Further Public Offer (FPO), the Companies Act 2013 and the ICDR Regulations to regulate this.