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How shares are Issued in Primary Market?

 Share is the proportionate part of the share capital and indicates ownership in a company. It represents the extent of ownership or interest in the assets and profits of the company.

Intrinsic value of share: Intrinsic value of share is the present value of expected future value discounted at the investor’s appropriate required rate of return.

Market value: Market value of a security is the current price at which the stock is being traded in the market.

Procedures of Issue of share in Primary Market
              Issue of share in the primary market is also called Initial Public Offering (IPO). IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. It involves following procedures:

1) Selection of merchant banker: To start the procedure of issuing share a merchant banker is selected by issuing company. A merchant banker is an institution which provides services regarding the issue of share and debenture to the companies. The merchant banker is paid commission for its services, which is called underwriting commission.

2) Issue of Prospectus: A merchant banker issues invitation on behalf of related company to subscribe its share through leading newspapers within 90 days if its registration. A prospectus is used to invite the public to subscribe the share of a company. It consists of the profitability and financial condition of the company along with necessary information regarding the company.

3) Share application receipt by the company: after issuance of prospectus the interested person apply for the share by fulfilling the application form specifying the number of shares. The merchant banker accepts the application along with the application money as mentioned in the prospectus.

4) Allotment of share to the applicants: After the date of application over, the merchant banker of the company distributes the share among applicants. And it is called allotment of share.
For the purpose of allotment, subscription may be of three types:
  • Full subscription: when applications are received for all the shares offered by the company it is called full subscription.
  • Under subscription: When applications received are less than the share offered, it is called under subscription.
  • Over subscription: when applications received are more than the shares offered, it is called over subscription.
 5)  Share Certificate: Finally share certificate is provided. It is a document of evidence of ownership of shares of a company. It bears name of shareholders and the number of shares owned by him/her.

Modes of issue of share
There are there modes of issue of shares:

  • Issue of shares at par: when a share is issued at its face value, it is called issue of share at par. That means if a share of Rs. 100 is issued at Rs. 100 then it is called issue of share at par.
  • Issue of shares at premium: when the issued price of share exceeds the par value then it is called issue of share at premium. That means if a share of Rs. 100 is issued at Rs. 110 then it is called issue of share at premium. And the exceed amount i.e. Rs. 10(110-100) is called share premium. 
  • Issue of shares at discount: if a share is issued at a price below then par value is called issue of share s at discount. That means if a share of Rs. 100 is issued at Rs. 90, then it is called share issued at discount.


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