Basics of Stock Market - 3

Let us see what is a Stock Market

It is an organised market where the listed shares are traded. This place enables to buy or sell the shares they hold in a Company. Again only the shares of the Company, which was allowed to trade in the particular stock can be dealt with.

What is a Stock Exchange?
Stock Exchange’ is any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. A Stock exchange could be a regional stock exchange (Madras Stock Exchange, Bombay Stock Exchange, Bangalore Stock Exchange) whose area of operation/jurisdiction is specified at the time of its recognition or national exchanges (National Stock Exchange), which are permitted to have nationwide trading since inception.

Different types of Issues.
Whenever a Company wants the shares to be listed and traded in a Stock Exchange, it has to Offer or Issue atleast 25% of the Share Capital to the public. There is a difference between Issue and Offer. Issue means issuing fresh shares and Offer means offering 25% of the existing shares. In case of an Issue, the Capital will increase. In case of an Offer the Capital remains same.

Why do companies need to issue shares to the public?
Normally a company is started by few people (known as Promoters). Over a period, they get Loans or Private Equity or Venture Capital to meet the growing needs of the business. So they invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by Securities Exchange Board of India. (SEBI). In case of Offer of shares - normally the promoters or the Private Equity player or the Venture Capitalist will offer the share to the public to get the shares listed & traded.

What is the main benefit of getting a share listed?
Listing enables liquidity, which is otherwise not available to a normal company's share.

That's all for now, as I am tied up with office work.

Cheers,
Gopal