PROSPECTUS

It is an invitation to the public to subscribe to its share/debentures. Once the draft is prepared it is sent to SEBI for vetting. Once SEBI has vetted it, then the draft prospectus and application form together with articles and memorandum of association is forwarded to the stock exchange for approval, where the issue is proposed to be listed.

IPO (initial public offer)

An initial public offering (IPO), is the first sale of stock by a formerly private company. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an Investment Banking firm acting in the capacity of an underwriter to help them correctly assess the value of their shares, that is, the share price (IPO Initial Public Offerings, 2011).

ESOP (employee stock option scheme)

An employee stock option is a call option on the common stock of a company, issued as a form of non-cash compensation. Restrictions on the option (such as vesting and limited transferability) attempt to align the holder's interest with those of the business shareholders. If the company's stock rises, holders of options generally experience a direct financial benefit. This gives employees an incentive to behave in ways that will boost the company's stock price. Employee stock options are mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation. Alternatively, employee-type stock options can be offered to nonemployees: suppliers, consultants, lawyers and promoters for services rendered. Employee stock options are similar to warrants, which are call options issued by a company with respect to its own stock. Stock option expensing became a controversy in the early 2000s, and it was eventually determined by the Financial Accounting Standards Board that the options should be expensed at their fair value as of the grant date.

SWEAT EQUITY
Sweat equity is a term that refers to a party's contribution to a project in the form of effort --- as opposed to financial equity, which is a contribution in the form of capital. The term is sometimes used to describe the efforts put into a start-up company by the founders in exchange for ownership shares of the company. This concept, also called "stock for services" and sometimes "equity compensation" or "sweat equity" can also be seen when startup companies use their shares of stock to entice service providers to provide necessary corporate services in exchange for a discount or for deferring service fees until a later date, see e.g. "Idea Makers and Idea Brokers in High Technology Entrepreneurship" by Todd L. Juneau et al., Greenwood Press, 2003, which describes equity for service programs involving patent lawyers and securities lawyers who specialize in start-up companies as clients. New companies like Sweat Equity Connection have been created to link founders of early stage companies in search of management employees and service providers with candidates who have declared their willingness to work for sweat equity in these type firms

ROLE OF A LEAD MANAGER

Lead managers are independent financial institution appointed by the company going public. Companies appoint more then one lead manager to manage big IPO's. They are known as Book Running Lead Manager and Co Book Running Lead Managers. Their main responsibilities are to initiate the IPO processing, help company in road shows, creating draft offer document and get it approve by SEBI and stock exchanges and helping company to list shares at stock market In the pre-issue process, the Lead Manager (LM) takes up the due diligence of companys operations/ management/ business plans/ legal etc. Other activities of the LM include drafting and design of Offer documents, Prospectus, statutory advertisements and memorandum containing salient features of the Prospectus. The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalisation of Prospectus and RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in the pre-issue processes.

LEAD BANKER
A bank that oversees the arrangement of a loan syndication. The lead bank is paid an additional fee for this service, which involves recruiting the members and negotiating the financing terms. In the Eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate. The Lead Bank Scheme provides leadership in initiating, streamlining and accelerating the process of development of the respective district by enlisting the co-operation of other banks and by maintaining continuous liaison with Government & Quasi Government agencies.

Proportionate allotment
In this allotment process shares is distributed proportionately to all the applicants of Initial Public Offering (IPO) irrespective of amount applied for shares. The allotment done is in form of :

One half Balance one half

: upto 1000 shares : larger applications

Pro-rata allotment
When issue is over-subscribed , the company will have to allot to each applicant to each applicant according to the number of share applied by him. Ex- In case a company has offered 100000 shared to the public but the public has applied for 200000 shares, pro rata allotment would be made in proportion of 1:2.

Co-partnership- merits and limitations

(Business / Industrial Relations & HR Terms) a form of industrial democracy in which the employees of an organization are partners in the company and share in part of its profits

Merits
Working as of own company High profit benefits the employee Employees value increased If organization perform well then the employees are appraised Employee feel good and thus work hard Working environment changes No in differentiation

LIMITATIONS
Employee may cheat as for more money No privacy Confidence on any employee cannot be achieved Conflict between employees is usual Decision approach cannot be done because of difference in opinion

ADVANTAGES AND DISADVANTAGES OF ESOP

ESOP An employee stock option is a call option on the common stock of a company, issued as a form of non-cash compensation. Restrictions on the option (such as vesting and limited transferability) attempt to align the holder's interest with those of the business shareholders. If the company's stock rises, holders of options generally experience a direct financial benefit. This gives employees an incentive to behave in ways that will boost the company's stock price.

There are several major advantages to ESOPs, including: Takeover Protection Financing Advantages Deduction for Dividends Paid No recognition of Capital Gain Deferral of Taxation Exemptions from the Prohibited Transaction Rules Marketability of Stock There are several major disadvantages associated with ESOPs, including: Equity Dilution Valuation Problems Cost of Operating the ESOP Voting Rights Employer Cash Flow Issues

 Employee Risk

ADVANTAGES OF PRIVATE PLACEMENT / BOUGHT OUT DEALS ADVANTAGES OF PRIVATE PLACEMENT Money can be invested on small shares of the company. It is an excellent way for the business to finance them as you can raise those capital funds easily. Companys securities are not placed for any sale Compared to public issue investments. No registration with the exchange commission and securities, because The offer is made to a few groups of individuals. Good returns in the future with favorable business improvement

ADVANTAGES OF BOUGHT OUT DEALS Bought deals are usually priced at a larger discount to market than fully marketed deals, and thus may be easier to sell; and The issuer/client may only be willing to do a deal if it is bought (as it eliminates execution or market risk.)

MAJOR STEPS IN PUBLIC ISSUE

BOARD MEETINGS LEAD MANAGERS CO-MANAGERS ADVISORS UNDERWRITERS BOARD MEETINGS A meeting of the board of directors is called to discuss the public offer of shares. LEAD MANAGERS A merchant banker is appointed as the lead manager who orchestrates the issue in consultation with the company.

CO-MANAGERS In case of requirement the lead manager may appoint co-managers to share the work.

ADVISORS Also the lead manager may appoint advisors for counseling purpose.

UNDERWRITERS Underwriting can be defined as, an agreement between the capital issuing company and the underwriter(s), whereby the underwriters guarantee to subscribe the whole or part of the issued capital that would remain unsubscribed by the public, in consideration for a commission.

STEPS TO BE FOLLOWED FOR AN IPO / PUBLIC ISSUE

STEPS OF IPO

PRE-ISSUE

Board resolution for approving the draft prospectus and related resolution Shareholders resolution pursuant to section 81(1A) of the companies act, 1956. Filing of form 23 with ROC for passing special resolution for issuing Appointment of intermediaries and entering into MOU with them. Due diligence by a merchant banker Submission of all required papers / documents with merchant banker Preparation of draft prospectus in consultation with the merchant banker and submitting the same with SEBI along with the fees and other requirement and submitting the same with stock exchange as per guidelines. Receipt of queries from SEBI/ stock exchanges, if any and make changes in prospectus, if required Reply to SEBI /stock exchange in connection with changes in prospectus Obtaining in-principal approval from stock exchange File final prospectus with SEBI / stock exchange /ROC Statuary advertisement Submission of 1% security deposit with the regional stock excahne Depositing promoters contribution in the issue in a separate bank account

POST- ISSUE

Collection of application forms and processing the same at the registrar and share transfer agents office in consultation with the merchant banker. Separate account to be opened for the application received from public. Submitting 3-day post issue monitoring report with SEBI by merchant banker. Basis of allotment in consultation with the regional stock exchange. Post-issue advertisement. Dispatch of share certificate/refund orders. File form no.2 return of allotment with ROC. Entering into an listing agreement . Obtaining permission from stock exchange for listing and trading of securities. Commencement of trading of securities. 78-day post issue monitoring report to be submitted by merchant banker with SEBI. Redressel of investors grievance. Application to SEBI / stock exchange for refund of security deposit.

STEPS OF PUBLIC ISSUE

Board meetings Lead managers Co-managers Advisors Underwriters Banker Brokers and principal brokers Registrars to the issue Prospectus Application to stock exchange to list shares Registrar of companies (roc) Prospectus and application forms Initial listing application Promotional campaign Statutory announcement Subscription list Collection of applications Separate bank account Processing of applications Minimum subscription Underwriting liability Allotment of shares Over subscription Compliance report Listing Issuance of share certificates

LATEST CONTROVERSIES RELATED TO IPOS AND MULTIPLE DEMAT ACCOUNTS Latest Controversies related to IPOs

Union Bank of Indias (UBI) IPO has broken a 3-year record of investor response to banking issues, mopping up a whopping Rs 1,380 crore. The issue, which closed on Wednesday, has been oversubscribed by almost 5 times. The Rs 288-crore public issue has received 3.5 lakh applications, which shows the overwhelming investor response. The retail portion has been oversubscribed by 4 times which reflects the strong small investor response. This is a record in itself, in terms of a large amount of retail participation during the past three years, PRIME managing director Prithvi Haldea of the Delhi-based primary market database. The major chunk of money mobilized from the public came during the last day. The bank collected over Rs 800 crore mainly backed by big applications on Wednesday, according to sources. The bank employees have also overwhelmingly responded to the public issue with a total commitment of Rs 66 crore against the reserved portion of Rs 28.8 crore. Around 50-60 per cent of the total money mopped up came from retail investors, according to sources associated with the issue. The region-wise break up shows that Mumbai and Gujarat contributed a sizeable portion of the mop up. The big ticket investors from regions like Mumbai, Delhi, Baroda, Surat and Ahmedabad have put in large applications during the last day, the source said. Interestingly, a number of investors from small towns in Uttar Pradesh like Gazipur, Meerut and Azamgarh had applied for the IPO during the 4th and 5th day of the issue. According to UBI, however, this is the best response among all the bank equity issues in the last four years. We thank our investors for showing their faith in us and for supporting the issue wholeheartedly, UBI chairman V Leeladhar said. Three major factors, according to Mr Haldea, contributed to the success of... he IPO: First, Punjab National Banks 100 per cent annualised returns after its listing created interest in this issue. Second, those who missed the PNB issue may not have wanted to lose another opportunity. Third, UBIs own customers may have responded to the IPO. The two banking IPOs which created history with their investor response include Global Trust Banks Rs 26-crore IPO (oversubscription 57.09 times) and Federal Banks Rs 31.91-crore issue (55.7 times)

MULTIPLE DEMAT ACCOUNTS

Yes Bank Ltd. ("YBL") was one such company that had come out with an IPO in the recent past. As sought by SEBI, during October 2005, Bombay Stock Exchange ("BSE") submitted an analysis of off market transactions in the shares of Yes Bank Ltd. ("YBL") during the pre-listing period. The Initial Public Offer (IPO) of YBL opened on June 15, 2005 and its shares were listed on the Stock Exchanges, namely BSE and National Stock Exchange ("NSE") on July 12, 2005. BSE observed that one Ms. Roopalben Nareshbhai Panchal had transferred 9,31,600 shares to various entities in seven off market transactions on July 11, 2005 i.e. prior to the listing and commencement of trading on the Stock Exchanges. In order to get an allotment of 9,31,600 shares, Ms. Roopalben Panchal would have had to apply for crores of shares involving many crores of rupees in application money . It was observed that Roopalben Panchal's name did not appear in the list of top 100 public issue allotees. In view of the above BSE suspected that Ms. Roopalben Panchal must have made multiple applications to be allotted 9,31,600 shares or that other applicants acting as a front for Ms. Roopalben Panchal may have applied on her behalf but in their own name. In view of the above observations of BSE, SEBI examined the dealings in the shares of YBL during the period from June 15, 2005 to July 15, 2005 ("the relevant period"). IPO of YBL YBL came out with a public issue of 70,000,000 equity shares of Rs. 10 each for cash at a price of Rs. 45 per equity share (including share premium of Rs. 35 per equity share) aggregating to Rs. 3,150 million constituting 25.93% of the fully diluted post issue paid up capital of YBL. Out of 70,000,000 equity shares offered in the public issue 35,000,000 equity shares were reserved for QIBs, 17,500,000 equity shares were to be allotted Non Institutional Investors and 17,500,000 equity shares were reserved for Retail Investors. The pre-issue capital of YBL consisted of 200,000,000 equity shares and the post issue capital of YBL was to be 270,000,000 equity shares. The IPO opened on June 15, 2005 and closed on June 21, 2005. DSP Merrill Lynch Ltd. and Enam Financial Consultants Pvt. Ltd. were the Book Running Lead Managers to the issue and Karvy Computershare Ltd. was the Registrar to the issue. The retail portion of the issue was oversubscribed by 9.96 times and the non-institutional portion was oversubscribed by 43.68 times. The basis of allotment was finalized on July 04, 2005 and the shares were credited to the IPO allottees on July 5, 2005. Listing of the shares on the Stock Exchanges and commencement of trading was on July 12, 2005. Transactions in YBL Shares by Ms. Roopalben Panchal and her Associates Information obtained from the Registrar to the Issue ("RTI") Karvy Computershare Pvt. Ltd. (Karvy - RTI) had acted as the RTI of YBL. SEBI sought from the RTI the copies of application forms received from certain entities that were seen to have made/received substantial share transfers in their dematerialized accounts subsequent to the closure of the IPO but prior to listing and commencement of the trading on the Stock Exchanges.

ESOP
An employee stock option[1] is a call option on the common stock of a company, issued as a form of non-cash compensation. Restrictions on the option (such as vesting and limited transferability) attempt to align the holder's interest with those of the business shareholders. If the company's stock rises, holders of options generally experience a direct financial benefit. This gives employees an incentive to behave in ways that will boost the company's stock price. Employee stock options are mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation. Alternatively, employee-type stock options can be offered to non-employees: suppliers, consultants, lawyers and promoters for services rendered. Employee stock options are similar to warrants, which are call options issued by a company with respect to its own stock. Stock option expensing became a controversy in the early 2000s, and it was eventually determined by the Financial Accounting Standards Board that the options should be expensed at their fair value as of the grant date.[2] Employee stock options (ESOs) are non-standardized calls that are issued as a private contract between the employer and employee. Over the course of employment, a company generally issues ESOs to an employee which can be exercised at a particular price set on the grant day, generally the company's current stock price. Depending on the vesting schedule and the maturity of the options, the employee may elect to exercise the options at some point, obligating the company to sell the employee its stock at whatever stock price was used as the exercise price. At that point, the employee may either sell the stock, or hold on to it in the hope of further price appreciation or hedge the stock position with listed calls and puts. The employee may also hedge the employee stock options prior to exercise with exchange traded calls and puts and avoid forfeiture of a major part of the options value back to the company thereby reducing risks and delaying taxes. Employee stock options have the following differences from standardized, exchange-traded options:

Exercise price: Quantity Vesting: Duration (Expiration): Non-transferable: Over the counter: Tax issues:

FINANCIAL ASSET :

A financial asset is any asset that is a) Cash ; b) An equity instrument of another entity: c) A contractual right; i. To receive cash or another financial asset from another entity: or ii. To exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to entity : or 2) A contract that will or may be settled in the entitys own equity instruments and is: i. A non-derivatives for which entity is or may be obliged to receive a variable number of the entitys own equity instrument.

(Q) From the following information for jallianwala baug ltd for the year ended 31st march,2009calculate the deferred tax asset / liability as per AS-22 Accounting profit Book profit as per MAT (minimum alternate tax) Profit as per income tax act Tax rate Mat rate SOLUTION : Rs.70,00,000. Rs.28,00,000. Rs.14,00,000. 30% 10%

Description Tax as per accounting profit Tax as per IT Tax as per MAT

Calculation 70,00,000 x 30% 14,00,000 x 10% 28,00,000 x 30%

Amount (Rs) 21,00,000 2,80,000 4,20,000

Tax expense = current tax +deferred tax 21,00,000 = 2,80,000 + deferred tax = deferred tax liability = 21,00,000-2,80,000 DTL = 18,20,000 Amount to be debited to profit and loss account = current tax + deferred tax liability + (MAT Current tax) 4,20,000 + 18,20,000+(2,80,000-1,40,000) = 4,20,000 + 18,20,000-1,40,000 = 21,00,000

(Q)

From the following information amazing zeal ltd. For the year ended 31 march,2009, calculate the defeered tax asset/libility as per AS-22 Accounting profit Book profit as per MAT (minimum alternate tax Profit as per income tax act Tax rate Mat rate SOLUTION : Description Tax as per accounting profit Tax as per IT Tax as per MAT Calculation 90,00,000 x 30% 12,00,000 x 10% 39,00,000 x 30% Amount (Rs) 21,00,000 2,80,000 4,20,000 Rs.90,00,000. Rs.39,00,000. Rs.12,00,000. 30% 10%

Tax expense = current tax +deferred tax 27,00,000 = 3,60,000 + deferred tax = deferred tax liability = 27,00,000-3,60,000 DTL = 23,40,000 Amount to be debited to profit and loss account = current tax + deferred tax liability + (MAT Current tax) 3,60,000 + 23,40,000+(3,90,000-3,60,000) = 27,00,000 + 30,000 = 27,30,000

(Q)

From the following information for elation ltd. For the year ended 31th march,2009, calculate the differed tax asset/liability as per AS-22 Accounting profit Book profit as per Mat (minimum alternate tax Profit as per income tax act Tax rate Mat rate SOLUTION : Rs.55,00,000. Rs.23,00,000. Rs.13,00,000. 30% 10%

Description Tax as per accounting profit Tax as per IT Tax as per MAT

Calculation 55,00,000 x 30% 23,00,000 x 10% 13,00,000 x 30%

Amount (Rs) 16,50,000 2,30,000 3,90,000

Tax expense = current tax +deferred tax 16,50,000 = 3,90,000 + deferred tax = deferred tax liability = 21,00,000-3,90,000 DTL = 12,60,000 Amount to be debited to profit and loss account = current tax + deferred tax liability + (MAT Current tax) 3,90,000 + 12,60,000+(2,30,000-3,90,000) = 8,70,000 1,60,000 = 7,10,000

(Q)

From the following information for mimosa ltd. For the year ended 31th march,2009, calculate the differed tax asset/liability as per AS-22 Accounting profit Book profit as per Mat (minimum alternate tax Profit as per income tax act Tax rate Mat rate SOLUTION : Description Tax as per accounting profit Tax as per IT Tax as per MAT Calculation 60,00,000 x 30% 21,00,000 x 30% 99,00,000 x 10% Amount (Rs) 18,00,000 6,30,000 9,90,000 Rs.60,00,000. Rs.99,00,000. Rs.21,00,000. 30% 10%

Tax expense = current tax +deferred tax 18,00,000 = 6,30,000 + deferred tax = deferred tax liability = 18,00,000-6,30,000 DTL = 11,70,000 Amount to be debited to profit and loss account = current tax + deferred tax liability + (MAT Current tax) 6,30,000 + 11,70,000+(9,90,000-6,30,000) = 18,00,000 3,60,000 = 14,40,000

(Q)

Andromeda ltd, has provided depreciation as per accounting record Rs.120 lakhs but as per tax record Rs.150 lakhs. unamortized preliminary expenses, as per tax record is Rs.30,000. There is adequate evidence of future profit sufficiency. Tax rate 30%. How much differed tax asset/liability should be recognized as transition adjustment as per AS-22

SOLUTION :

Depreciation Excess depreciation as per tax(tax depreciation- accounting depreciation) Less : unamortized expenses provided in taxable income Timing difference

Calculation Rs 150 lakhs -120lakhs =

Amount (Rs) 30.00 0.30 29.70

As tax expense is more than the current tax due to timing difference of 29.70lakhs therefore deferred tax liability = 30 % of Rs. 29.70 is 8.91. lakhs

(Q)

New jewel ltd, has provided depreciation as per accounting record Rs.60 lakhs but as per tax record Rs.90 lakhs. unamortized preliminary expenses, as per tax record is Rs.20,000. There is adequate evidence of future profit sufficiency. Tax rate 30%. How much differed tax asset/liability should be recognized as transition adjustment as per AS-22

SOLUTION :

Depreciation Excess depreciation as per tax(tax depreciation- accounting depreciation) Less : unamortized expenses provided in taxable income Timing difference

Calculation Rs 90 lakhs -60lakhs =

Amount (Rs) 30.00 0.20 29.80

As tax expense is more than the current tax due to timing difference of 29.70lakhs therefore deferred tax liability = 30 % of Rs. 29.80 is 8.94. lakhs

(Q)

Rising star ltd ,has provided depreciation as per accounting record Rs.70 lakhs but as per tax record Rs.110 lakhs. unamortized preliminary expenses, as per tax record is Rs.25,000. There is adequate evidence of future profit sufficiency. Tax rate 30%. How much differed tax asset/liability should be recognized as transition adjustment as per AS-22

SOLUTION :

Depreciation Excess depreciation as per tax(tax depreciation- accounting depreciation) Less : unamortized expenses provided in taxable income Timing difference

Calculation Rs 110 lakhs -70lakhs =

Amount (Rs) 40.00 0.25 39.75

As tax expense is more than the current tax due to timing difference of 29.70lakhs therefore deferred tax liability = 30 % of Rs. 39.75 is 11.925. lakhs

(Q)

Queen of Jhansi ltd, has provided depreciation as per accounting record Rs.55 lakhs bt as per tax record Rs.95 lakhs. Unamortized preliminary expenses, as per tax record is Rs.15,000. There is adequate evidence of future profit sufficiency. Tax rate 30%. How much differed tax asset/liability should be recognized as transition adjustment as per AS-22

SOLUTION :

Depreciation Excess depreciation as per tax(tax depreciation- accounting depreciation) Less : unamortized expenses provided in taxable income Timing difference

Calculation Rs 95 lakhs -55lakhs =

Amount (Rs) 40.00 0.15 39.85

As tax expense is more than the current tax due to timing difference of 29.70lakhs therefore deferred tax liability = 30 % of Rs. 39.85 is 11.955. lakhs