Offer for sale is a method of share sale where the public is invited to purchase a company’s existing shares. It is important for investors to understand the differences between shares and debentures before investing their money in either one. Both types of investments offer advantages and risks for investors to consider before making any decisions. Shares represent part ownership in a company and give investors the ability to access liquidity, transferability, and limited liability. A corporation or company can generally borrow money by issuing debentures or bonds.

A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. For example, if the face value of a share is Rs.10 and the same is issued at Rs.10, it means that the shares have been issued at par. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.

Different Types of Share Issuance

“Stock” is the financial instrument a company issues, and a “share” is a single instance of that financial instrument. By issuing shares, firms can raise capital at a low cost and invite investors to be a part of their growth story. However, these are mainly long-term strategic initiatives and require in-depth analysis. A publicly traded company’s total number of shares outstanding can usually be found on exchange platforms and in the shareholder’s equity section of the company balance sheet.

Issued shares are those the owners have decided to sell in exchange for cash, which may be less than the number of shares actually authorized. For example, a company purchased some assets from the vendor and instead of making payment to the vendor in cash, the company may allot shares in the discharge of purchase consideration. The issue of shares to vendors is known as the issue of shares for consideration other than cash.

Types of stocks

1. Share capital is the amount of ‘investment in shares of a company’ made by the promoters and members of that company.
2. The main reason for issuing new shares by the company is to raise money to finance the business.
3. A share is a unit of the total capital of an enterprise divided into equal portions in the profits of the company (if there is profit) in the form of dividends.
4. In this article, read about what type of shares it can issue, how a company can use the proceeds of share issuance, and other details.

You may not have the $900 to purchase the additional 300 shares at $3 each, so you can always let your rights expire. If you choose to do nothing, your existing shareholding will be diluted thanks to the extra shares issued by the company. In estimating this dilution, remember that you can never know for certain the future value of your expanded shareholding since it can be affected by business and market factors. But the theoretical share price that will result after the rights issue is complete—which is the ex-rights share price—is possible to calculate. To take advantage of the rights issue in full, you would need to spend $3 for every Wobble share that you are entitled to purchase under the issue. As you hold 1,000 shares, you can buy up to 300 new shares (three shares for every 10 you already own) at the discounted price of $3 for a total price of $900.

Basically, when a person talks about stocks in general, they are talking about this kind of stock. The common shares represent the ownership in the company and claim on a part of the profits. As time goes by, the common stock yields higher returns than any other investment. But this return comes at a cost, as the common stock comes with a great risk. In case the company liquidates or goes bankrupt, the common shareholders would not get money until all the bondholders, creditors, types of issue of shares and preferred shareholders are paid.

This certificate has to be issued within two months after the grant date of the shares. And just like currency notes, the companies use intricate designs on their certificates to restrict fraudulent replications. It contains a contract for the repayment of the principal sum at a specified date and the payment of interest at a fixed rate until the principal sum is repaid. They represent an ownership interest in a company, typically with voting rights in corporate matters. Shares represent part ownership in a business, while debentures are debt instruments with a fixed rate of interest paid over a pre-set period of time. In other words, for every 10 shares you hold, Wobble is offering you another three at the deeply discounted price of $3.

What Is the Disadvantage of Issuing Shares?

For a small, closely held corporation, the original owners may hold all the issued shares. The share capital of a public company is raised by the issue of either (i) equity shares; or (ii) both equity and preference shares. The issue of shares refers to the process through which a company distributes new shares to existing or potential shareholders. This practice is a fundamental means of raising capital, enabling companies to finance projects, expand operations, or even pay off debts. When a company decides to expand or raise capital, one of the most effective ways is by issuing shares. Whether you’re an investor or a business owner, understanding the intricacies of share issuance is crucial.

Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. Last, the company can have an even different number of shares outstanding. Shares outstanding represent the number of shares that are currently held by all shareholders. This includes company insiders, institutional investors, and the general public. This number is equal to the number of issued shares minus any shares held as treasury stock. This priority treatment reduces the risk even further compared to common shares.

Chapter 8: Sources of Business Finance

The allotment process ensures fairness and transparency, with clear records kept of how shares are distributed. The prospectus serves as a detailed invitation to potential investors, helping them make informed decisions about whether to invest in the company. Private placements, however, do not require a prospectus but must adhere to other regulatory guidelines. Issuing shares is a multi-step process that varies depending on the method chosen, but generally follows similar legal and procedural guidelines. The steps ensure transparency, protect investor interests, and ensure compliance with regulatory bodies such as the Securities and Exchange Board of India (SEBI). Companies choose to issue shares for various strategic reasons, and these decisions often align with their long-term goals.

The company categorizes the applications received into different groups according to the number of shares applied for. After all the conditions and formalities are fulfilled, the Board of Directors can proceed to allot shares as per SEBI guidelines after obtaining permission from the stock exchange. The company deposits all the drafts in a separate bank account opened for the purpose of a scheduled bank. As per section 39 of the companies Act, 2013, application money must be at least 5% of the nominal value of shares. A company cannot proceed to allot shares unless a minimum subscription is received by the company. In other words, when the shareholders are required to pay an amount equal to the nominal or face value of the shares, it is called the issue of shares at par.