If a company wants to offer securities to the public, it has the options of either an initial public offer or a follow public offer. A public offer is defined as an offer of securities by a public company through issue of a prospectus. The Companies Act 2013, further specifies that an offer to more than 200 persons (excluding qualified institutional buyer and those employees who have been offered employee stock option company) in the aggregate in a financial year will constitute a public offer.
Initial Public Offer
An offer of securities by an unlisted company to the public for a subscription which also includes an offer for sale of securities to the public by any existing holder is called initial public offer.
Follow on Public Offer
This refers to an offer of securities by a listed company to the public for subscription and includes an offer for sale of such securities to the public by existing holders.
SEBI’s Power to Regulate the Issue and Transfer of Securities
SEBI possesses the power to regulate the issue and the transfer of securities by listed or to be listed companies. SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2009 provides the framework for securities-issuance and are applicable to all public issues.
Conditions Required for a Public Issue
Regulation 4 of SEBI (IDCR) prescribes the condition for the public issue of securities. All of these conditions need to be satisfied when the draft offer document is filled with SEBI and when filling the final offer document with the registrar of companies. Regulation 26 lists down the eligibility conditions which should be met by unlisted companies for making a public offer of securities.
Disclosures and Conditions in an Offer Document
The disclosures made in the offer document should be in accordance with SEBI (IDCR) Regulations, 2009. These disclosures can be of certain information regarding the company, inter alia, its capital structure, details of directors, promoters, certain auditor reports, details of financial performance, objects of the public offer and details of litigation. Conditions related to pricing of securities, the filing of offer documents, promoters’ contribution, lock-in requirements, minimum subscription and allotment of securities have to be complied with by companies who wish to make a public offer.
Conditions to List Securities
Issuers who wish to list their securities on a stock exchange have to comply with the listing conditions and requirements under the Listing Obligations Regulations. These regulations have come into effect on Dec 01, 2015. Prior to this, any listed entity had to comply with the conditions of the listing agreement with that particular stock exchange where it’s listed its securities.