What is Public Issue of Securities?

S7-SA7-0319

Grade Level:

Class 12

AI/ML, Physics, Biotechnology, FinTech, EVs, Space Technology, Climate Science, Blockchain, Medicine, Engineering, Law, Economics

Definition

What is it?

A Public Issue of Securities is when a company offers its shares or bonds to the general public for the very first time or to raise more capital. It's like a company inviting people to become part-owners by buying a small piece of it.

Simple Example

Quick Example

Imagine a popular chai shop, 'Chai Garam', wants to open 100 new branches across India. They need a lot of money. Instead of borrowing from one big bank, they decide to sell small 'ownership pieces' (shares) to thousands of people like you and me. This process of selling shares to the public is a public issue.

Worked Example

Step-by-Step

Let's say 'TechGenius Pvt Ltd' wants to raise Rs 100 crore to build a new AI research lab.

1. **Decide how much to raise:** The company needs Rs 100 crore.
2. **Decide share price:** They decide to issue 1 crore shares, each priced at Rs 100.
3. **Appoint bankers:** They work with investment banks to manage the process, like filing papers and collecting applications.
4. **Announce the 'offer':** They advertise in newspapers and online, inviting the public to apply for shares.
5. **Public applies:** Thousands of people apply, stating how many shares they want to buy.
6. **Allotment:** If more people apply than shares available, shares are distributed fairly (often through a lottery). If fewer apply, everyone gets what they asked for.
7. **Shares listed:** Once shares are allotted and money is collected, they are listed on a stock exchange (like NSE or BSE) where people can buy and sell them later.

Result: TechGenius Pvt Ltd successfully raised Rs 100 crore from the public.

Why It Matters

Understanding public issues is crucial for anyone interested in FinTech, Economics, or even launching their own startup in areas like EVs or Biotechnology. It's how innovative companies get the money to grow, create new technologies, and build amazing products. Future entrepreneurs and financial analysts need to know this process.

Common Mistakes

MISTAKE: Thinking a public issue is only for new companies. | CORRECTION: While many public issues are by new companies (called IPOs), existing companies can also do a public issue to raise more money for expansion.

MISTAKE: Believing that applying for shares in a public issue guarantees you will get them. | CORRECTION: If the public issue is very popular (oversubscribed), shares are often allotted through a lottery system, so you might not get any.

MISTAKE: Confusing a public issue with trading shares on the stock market. | CORRECTION: A public issue is when a company *first sells* its shares to the public. Trading on the stock market is when people buy and sell *existing* shares from each other.

Practice Questions

Try It Yourself

QUESTION: A company named 'GreenEnergy' wants to raise Rs 50 crore by issuing shares to the public. If each share is priced at Rs 100, how many shares will they issue? | ANSWER: 50,00,000 shares (50 crore / 100 = 50,00,000)

QUESTION: Why would a company prefer a public issue over taking a large loan from a single bank? Give one reason. | ANSWER: A public issue spreads ownership and risk among many investors, and the company doesn't have to pay fixed interest like on a loan. It also gives the company more visibility.

QUESTION: 'FutureCars Ltd' plans a public issue of 2 crore shares at Rs 250 each. If they receive applications for 3 crore shares, what term describes this situation, and what might happen next for allotment? | ANSWER: This situation is called 'oversubscription'. Next, the shares will likely be allotted through a lottery or a pro-rata basis (distributing shares proportionally) among the applicants.

MCQ

Quick Quiz

Which of the following is NOT a typical reason for a company to undertake a public issue of securities?

To expand business operations

To repay existing debts

To buy back shares from existing shareholders

To fund research and development for new products

The Correct Answer Is:

A public issue is about raising new capital from the public. Buying back shares (option C) is when a company uses its own money to reduce the number of shares outstanding, which is the opposite of raising capital from the public.

Real World Connection

In the Real World

When you hear news about a big Indian company like Zomato, Paytm, or LIC doing an 'IPO' (Initial Public Offer), that's a type of public issue! They offered their shares to lakhs of people across India, allowing them to become part-owners. This helps these companies get funds to grow their apps, services, and reach more customers, just like how ISRO gets funds for space missions or how a new EV startup raises money to build electric vehicles.

Key Vocabulary

Key Terms

SECURITIES: Financial instruments like shares and bonds that represent ownership or a debt | IPO (Initial Public Offer): The very first time a company offers its shares to the public | SHARE: A unit of ownership in a company | OVERSUBSCRIPTION: When the number of applications for shares is more than the shares offered | ALLOTMENT: The process of distributing shares to applicants

What's Next

What to Learn Next

Now that you understand what a public issue is, next you should learn about 'Initial Public Offerings (IPOs)'. IPOs are a specific type of public issue and are very common, especially for new and growing companies. It builds directly on what you've learned here!