What is SEBI?

Securities and Exchange Board of India (SEBI) is an apex body for overall development and regulation of the securities market. It was set up on April 12,1988. To start with, SEBI was set up as a non-statutory body. Later on it became a statutory body under the Securities Exchange Board of India Act, 1992. The Act entrusted SEBI with comprehensive powers over practically all the aspects of capital market operations. Role Functions of SEBI The role or functions of SEBI are discussed below. To protect the interests of investors through proper education and guidance as regards their investment in securities. For this, SEBI has made rules and regulation to be followed by the financial intermediaries such as brokers, etc. SEBI looks after the complaints received from investors for fair settlement. It also issues booklets for the guidance and protection of small investors. To regulate and control the business on stock exchanges and other security markets. For this, SEBI keeps supervision on brokers. Registration of brokers and sub-brokers is made compulsory and they are expected to follow certain rules and regulations. Effective control is also maintained by SEBI on the working of stock exchanges. To make registration and to regulate the functioning of intermediaries such as stock brokers, subbrokers, share transfer agents, merchant bankers and other intermediaries operating on the securities market. In addition, to provide suitable training to intermediaries. This function is useful for healthy atmosphere on the stock exchange and for the protection of small investors. To register and regulate the working of mutual funds including UTI (Unit Trust of India). SEBI has made rules and regulations to be followed by mutual funds. The purpose is to maintain effective supervision on their operations & avoid their unfair and anti-investor activities. To promote self-regulatory organization of intermediaries. SEBI is given wide statutory powers. However, self-regulation is better than external regulation. Here, the function of SEBI is to encourage intermediaries to form their professional associations and control undesirable activities of their members. SEBI can also use its powers when required for protection of small investors. To regulate mergers, takeovers and acquisitions of companies in order to protect the interest of investors. For this, SEBI has issued suitable guidelines so that such mergers and takeovers will not be at the cost of small investors. To prohibit fraudulent and unfair practices of intermediaries operating on securities markets. SEBI is not for interfering in the normal working of these intermediaries. Its function is to regulate and control their objectional practices which may harm the investors and healthy growth of capital market. To issue guidelines to companies regarding capital issues. Separate guidelines are prepared for first public issue of new companies, for public issue by existing listed companies and for first public issue by existing private companies. SEBI is expected to conduct research and publish information useful to all market players (i.e. all buyers and sellers). To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-regulating organizations and to take suitable remedial measures wherever necessary. This function is undertaken for orderly working of stock exchanges & intermediaries. To restrict insider trading activity through suitable measures. This function is useful for avoiding undesirable activities of brokers and securities scams.

Lead Merchant Bankers A merchant bank is a financial institution that provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to. In the United Kingdom, the term "merchant bank" refers to an investment bank. Today, according to the U.S. Federal Deposit Insurance Corporation (acronym FDIC), "the term merchant banking is generally understood to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies. Both commercial banks and investment banks may engage in merchant banking activities. Historically, merchant banks' original purpose was to facilitate and/or finance production and trade of commodities, hence the name "merchant". Few banks today restrict their activities to such a narrow scope. A merchant bank deals with the commercial banking needs of international finance, long-term company loans, and stock underwriting. This type of bank does not have retail offices where a customer can go and open a savings or checking account. It is sometimes said to be awholesale bank, or in the business of wholesale banking because these banks tend to deal primarily with other banks of the same kind, as well as large financial institutions. The most familiar role of the merchant bank is stock underwriting. A large company that wishes to raise money from investors through the stock market can hire this type of bank to implement and underwrite the process. The bank determines the number of stocks to be issued, the price at which the stock will be issued, and the timing of the release. It then files all the paperwork required with the various market authorities, and it is also frequently responsible for marketing the new stock, though this may be a joint effort with the company and managed by the merchant bank. For very large stock offerings, several banks may work together, with one being the lead underwriter. By limiting their scope to the needs of large companies, these banks can focus their knowledge and be of specific use to such clients. Some specialize in a single area, such as underwriting or international finance. What is Portfolio Management ? The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management. Portfolio management refers to managing an individuals investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame. Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers. In a laymans language, the art of managing an individuals investment is called as portfolio management. Need for Portfolio Management Portfolio management presents the best investment plan to the individuals as per their income, budget, age and ability to undertake risks.

Portfolio management minimizes the risks involved in investing and also increases the chance of making profits. Portfolio managers understand the clients financial needs and suggest the best and unique investment policy for them with minimum risks involved. Portfolio management enables the portfolio managers to provide customized investment solutions to clients as per their needs and requirements. Types of Portfolio Management Portfolio Management is further of the following types: Active Portfolio Management: As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals. Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario. Discretionary Portfolio management services: In Discretionary portfolio management services, an individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual issues money to the portfolio manager who in turn takes care of all his investment needs, paper work, documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full rights to take decisions on his clients behalf. Non-Discretionary Portfolio management services: In non discretionary portfolio management services, the portfolio manager can merely advise the client what is good and bad for him but the client reserves full right to take his own decisions. Who is a Portfolio Manager ? An individual who understands the clients financial needs and designs a suitable investment plan as per his income and risk taking abilities is called a portfolio manager. A portfolio manager is one who invests on behalf of the client. A portfolio manager counsels the clients and advises him the best possible investment plan which would guarantee maximum returns to the individual. A portfolio manager must understand the clients financial goals and objectives and offer a tailor made investment solution to him. No two clients can have the same financial needs. Roles and Responsibilities of a Portfolio Manager A portfolio manager is one who helps an individual invest in the best available investment plans for guaranteed returns in the future. Let us go through some roles and responsibilities of a Portfolio manager: A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. Investment is essential for every earning individual. One must keep aside some amount of his/her income for tough times. Unavoidable circumstances might arise anytime and one needs to have sufficient funds to overcome the same.

A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Make an individual realize why he actually needs to invest and which plan would be the best for him. A portfolio manager is responsible for designing customized investment solutions for the clients. No two individuals can have the same financial needs. It is essential for the portfolio manager to first analyze the background of his client. Know an individuals earnings and his capacity to invest. Sit with your client and understand his financial needs and requirement. A portfolio manager must keep himself abreast with the latest changes in the financial market. Suggest the best plan for your client with minimum risks involved and maximum returns. Make him understand the investment plans and the risks involved with each plan in a jargon free language. A portfolio manager must be transparent with individuals. Read out the terms and conditions and never hide anything from any of your clients. Be honest to your client for a long term relationship. A portfolio manager ought to be unbiased and a thorough professional. Dont always look for your commissions or money. It is your responsibility to guide your client and help him choose the best investment plan. A portfolio manager must design tailor made investment solutions for individuals which guarantee maximum returns and benefits within a stipulated time frame. It is the portfolio managers duty to suggest the individual where to invest and where not to invest? Keep a check on the market fluctuations and guide the individual accordingly. A portfolio manager needs to be a good decision maker. He should be prompt enough to finalize the best financial plan for an individual and invest on his behalf. Communicate with your client on a regular basis. A portfolio manager plays a major role in setting financial goal of an individual. Be accessible to your clients. Never ignore them. Remember you have the responsibility of putting their hard earned money into something which would benefit them in the long run. Be patient with your clients. You might need to meet them twice or even thrice to explain them all the investment plans, benefits, maturity period, terms and conditions, risks involved and so on. Dont ever get hyper with them. Never sign any important document on your clients behalf. Never pressurize your client for any plan. It is his money and he has all the rights to select the best plan for himself.

Definition of 'Issued Shares' The number of authorized shares that is sold to and held by the shareholders of a company, regardless of whether they are insiders, institutional investors or the general public. Also known as "issued stock." Issued shares include the stock that a company sells publicly in order to generate capital and the stock given to insiders as part of their compensation packages. Unlike shares that are held as treasury stock, shares that have been retired are not included in this figure. The amount of issued shares can be all or part of the total amount of authorized shares of a corporation. The total number of issued shares outstanding in a company is most often shown in the annual report.

Classes of shares
Company Law Solutions provides an expert service advising on different classes of shares and the procedures for creating them. Most companies have only one class of shares, ordinary shares, but it is increasingly common for even very small private companies to have different share classes. This may be done for various reasons, such as to be able to vary the dividends paid to different shareholders, to create non-voting shares, shares for employees or family members, etc. A company can have what classes of shares it like,s and can call any class of shares by whatever name it chooses. Apart from ordinary shares, common types are preference shares, non-voting shares, A shares, B shares, etc (sometimes called "alphabet shares"), shares with extra voting rights (sometimes called "management shares"). The share class system is infinitely flexible. Different classes of shares, and the rights attached to them, should be set out in the company's articles of association. The new classes can then be allotted.Existing shares can be converted to different classes (conversion of shares). The Company Law Solutions website provides further practical advice on these areas.

Introduction Ordinary shares Non-voting shares Redeemable shares Preference shares Deferred ordinary shares Management shares Other classes of shares Voting shares, dividend shares, capital shares Deadlock articles Changing class rights Converting shares from one class to another

Introduction
(You may want to refer to 'Shares - an introduction' before reading this page.) Any company can create different classes of shares by setting out those classes and the rights attached to them in the company's articles. If a company has only one class of shares they will beordinary shares and will carry equal rights. Different classes of shares within a company can carry identical rights, but very often have different voting, dividend and/or capital rights. This is done for different reasons. Sometimes it is to attract a particular investor, e.g. by giving him or her preference shares. In other cases, shares are given to family members or employees so that dividends may be paid to them, because it may be a more taxefficient means of making payments to them. In such cases, the owners of the company may want to restrict the rights attached to such shares, e.g. by making them non-voting, and perhaps by making it possible to take the shares back if

circumstances change (perhaps by making them redeemable). In some companies, different classes of shares with the same rights are issued to different people, and the articles provide that the directors may vary the dividends between the different classes. Such shares rae often identified by a letter (socalled "alphabet shares"). The following are descriptions of some typical classes of shares. There are no legal definitions of such classes and shares with the same name (e.g. preference shares) will have different rights in different companies.

Ordinary shares
Most companies have just ordinary shares. They carry one vote per share, are entitled to participate equally in dividends and, if the company is wound up, share in the proceeds of the company's assets after all the debts have been paid. Some companies create different classes of ordinary shares, e.g. 'A' ordinary shares, 'B' ordinary shares, etc. This is done to create some small difference between the different classes, e.g. to allow the directors to pay different dividends to the holders of the different share classes, or to createdeadlock articles, or to distinguish between the shares so that different rules apply for share transfers, etc. There can also be ordinary shares in the same company that are of different nominal values, e.g. 1 ordinary shares and 10p ordinary shares. If each share has one vote (regardless of its nominal value) the holder of the 10p shares will get 10 votes for every 1 paid for them, while the holder of the 1 shares only gets one vote per 1.

Non-voting shares
Non-voting shares carry no rights to vote and usually no right to attend general meetings eitherWhat voting rights do shares have?. Such shares are widely used to issue to employees so that some of their remuneration can be paid as dividends, which can be more tax-efficient for the company and the employee. The same is also sometimes done for members of the main shareholders' families.Preference shares are often non-voting.

Redeemable shares
These are shares issued on terms that the company will, or may, buy them back at some future date. The date may be fixed (e.g. that the shares will be redeemed five years after they are issued) or at the directors' discretion. The redemption price is often the same as the issue price, but need not be. This can be a way of making a clear arrangement with an outside investor. They may also be redeemable at any time at the company's option. This often done with non-voting shares given to employees so that, if the employee leaves the company his shares can be taken back at their nominal value. There are statutory restrictions on the redemption of shares. The main requirement, like a

buy-back, being that the company may only redeem the shares out of accumulated profits or the proceeds of a fresh issue of shares (unless it makes a permissible capital. Preference shares are often redeemable

Preference shares
These will usually have a preferential right to a fixed amount of dividend, expressed as a percentage of the nominal (par) value of the share, e.g. a 1, 7% preference share will carry a dividend of 7p each year. It is, however, still a dividend and payable only out of profits. The dividend may be cumulative (i.e. if not paid one year then accumulates to the next year) or non-cumulative. The presumption is that it is cumulative. The dividend is usually restricted to a fixed amount, but alternatively the preference share may be participating, in which case it participates in profits beyond the fixed dividend under some formula. Preference share are often non-voting (or non-voting except when their dividend is in arrears). They are sometimes redeemable. They may be given a priority on return of capital on a winding up. Often they will not be entitled to share in surplus capital (i.e. they only get their 1 back on each 1 share).

Deferred ordinary shares

Shares on which no dividend is paid until other classes of shares have received a minimum dividend. Thereafter they will usually be fully participating.

Management shares
A class of shares carrying extra voting rights so as to retain control of the company in particular hands. This may be done by conferring multiple votes to each share (e.g. ten votes each) or by having a smaller nominal value for such shares so that there are more shares (and so more votes) per 1 invested. Such shares are often used to allow the original owners of a company to retain control after additional shares have been issued to outside investors.

Other classes
Any class of shares may be created. Sometimes different classes are set up for particular purposes, such as the following arrangements:

Voting shares, dividend shares, capital shares

Sometimes three classes of shares are created with class 'A' having all the voting rights, class 'B' having all the dividend rights and class 'C' having all the capital rights. It is then possible for the different shareholders to have different percentages of the rights for these purposes. As a simple example, Shareholder 1 may have 40% of the voting rights ('A' shares), 50% of the dividend rights ('B' shares) and 60% of the capital rights ('C' shares). Shareholder 2 then has 60% of the votes, 50% of the dividends and 40% of the capital.

Deadlock articles
In a company with two investors, A and B (perhaps a joint venture between two unrelated companies) the company may have two classes of shares, A shares and B shares. The shares may carry the same rights but are intended to protect both A and B in certain ways, e.g. the articles may provide for, say, two directors to be nominated by the holders of the A shares and two by the holders of the B shares, etc.

Changing class rights

There is some statutory protection given to the holders of a class of shares against the rights on their shares being altered. A minority class of shares, or a class of non-voting shares, would otherwise be vulnerable to the rights on those shares being altered by the majority (e.g. by altering the articles by special resolution). This is known as a variation of class rights. Full consideration of this complex area is outside the terms of this database, but the following is a summary of the main statutory provisions: CA 2006, sec630 provides that class rights may be varied only in accordance with the articles or if either: (a) the holders of three-quarters in nominal value of the issued shares of that class consent in writing to the variation; or (b)a special resolution (75% majority) is passed at a separate general meeting of the holders of that class to sanction the variation. CA 2006, sec633: The holders of not less than 15% of the issued shares of the class (being persons who did not consent to or vote in favour of the resolution for the variation), may apply to the court to have the variation cancelled.

Converting shares from one class to another

There is no statutory procedure for converting shares from one class to another. It may be done with the consent of all the shareholders affected. The safest course is to pass a resolution to which all the shareholders consent because, in practice, changing the rights on one person's shares may well have an effect, at least in practice on the rights of all the other shareholders. Such conversions are now relatively commonplace. More practical advice on this area can be found on the Company Law Solutions website. Caution Care needs to be taken when creating different classes of shares and, indeed, in issuing shares generally. There have been many examples over recent years where shares have been created in order to save tax without taking proper advice as to the implications of issuing such shares to employees, family members, etc. That is not to say that such schemes should be avoided, only that they should be put in place only with proper advice. Company Law Solutions provides an expert service advising on different classes of shares and the procedures for creating them. We do not give tax advice.

Qualifications for listing Initial Public Offerings (IPO) are as below:

i. Paid up Capital The paid up equity capital of the applicant shall not be less than 10 crores * and the capitalisation of the applicant's equity shall not be less than 25 crores** * Explanation 1 For this purpose, the post issue paid up equity capital for which listing is sought shall be taken into account. ** Explanation 2 For this purpose, capitalisation will be the product of the issue price and the post issue number of equity shares. In respect of the requirement of paid-up capital and market capitalisation, the issuers shall be required to include, in the disclaimer clause of the Exchange required to put in the offer document, that in the event of the market capitalisation (Product of issue price and the post issue number of shares) requirement of the Exchange not being met, the securities would not be listed on the Exchange. ii. Conditions Precedent to Listing: The Issuer shall have adhered to conditions precedent to listing as emerging from inter-alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes. Atleast three years track record of either: the applicant seeking listing; or the promoters****/promoting company, incorporated in or outside India or Partnership firm and subsequently converted into a Company (not in

iii.

existence as a Company for three years) and approaches the Exchange for listing. The Company subsequently formed would be considered for listing only on fulfillment of conditions stipulated by SEBI in this regard.
For this purpose, the applicant or the promoting company shall submit annual reports of three preceding financial years to NSE and also provide a certificate to the Exchange in respect of the following:

The company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR). The networth of the company has not been wiped out by the accumulated losses resulting in a negative networth The company has not received any winding up petition admitted by a court.

****Promoters mean one or more persons with minimum 3 years of experience of each of them in the same line of business and shall be holding at least 20% of the post issue equity share capital individually or severally. iv. The applicant desirous of listing its securities should satisfy the exchange on the following: No disciplinary action by other stock exchanges and regulatory

authorities in past three years There shall be no material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant

company. In respect of promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) of the applicant company, there shall be no material regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year. Redressal Mechanism of Investor grievance The points of consideration are:

i.

The applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) track record in redressal of investor grievances ii. The applicant's arrangements envisaged are in place for servicing its investor. iii. The applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) general approach and philosophy to the issue of investor service and protection iv. defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) shall also be considered while evaluating a company's application for listing. The auditor's certificate shall also be obtained in this regard. In case of defaults in such payments the securities of the applicant company may not be listed till such time it has cleared all pending obligations relating to the payment of interest and/or principal. Distribution of shareholding The applicant's/promoting company(ies) shareholding pattern on March 31 of last three calendar years separately showing promoters and other groups' shareholding pattern should be as per the regulatory requirements. Details of Litigation The applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) litigation record, the nature of litigation, status of litigation during the preceding three years period need to be clarified to the exchange. Track Record of Director(s) of the Company In respect of the track record of the directors, relevant disclosures may be insisted upon in the offer document regarding the status of criminal cases filed or nature of the investigation being undertaken with regard to alleged commission of any offence by any of its directors and its effect on the business of the company, where all or any of the directors of issuer have or has been charge-sheeted with serious crimes like murder, rape, forgery, economic offences etc.

Note: a) In case a company approaches the Exchange for listing within six months of an IPO, the securities may be considered as eligible for listing if they were otherwise eligible for listing at the time of the IPO. If

the company approaches the Exchange for listing after six months of an IPO, the norms for existing listed companies may be applied and market capitalisation be computed based on the period from the IPO to the time of listing.