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Although shares and stocks sound similar in most contexts and have been always misinterpreted, however, there are some key differences between stocks and shares. In this article, we will understand the difference between stocks and shares.
But before we go ahead let us understand the basic meaning and definition of shares and stocks.
Any public or private, listed or unlisted company can raise funds through preferential allotment of shares or other securities from the specific group of investors. The company whether unlisted or listed in any recognised stock exchange is eligible to raise funds by preferential issues but the condition is, if the company is a listed in any stock exchange, the guidelines of SEBI Act, 1992 shall be applicable, otherwise, Section 62 of the Companies Act, 2013 shall be applicable in case of unlisted companies.
Now let’s understand what does it mean by preferential allotment/ issues and which guidelines need to be fulfilled during preferential allotment.
The unlisted companies first time raise share capital by issuing IPO to the general public/ investors, however, issuing an IPO involves various strict rules and regulations and being, complicated procedures the mediocre or newly establish enterprises sometimes unable to raise funds through an initial public offering.
Therefore, such companies which don’t want to go into public or unable to fulfil the guidelines of SEBI (Securities and Exchange Board of India) can also raise funds through private placements or preferential allotment.
Share capital is the most popular and convenient source of long term finance for companies. The organisations utilise multiple types of issues to raise public funds from the capital market. The IPOs and FPOs are one of those issues through which a company issue (sell-off) financial securities like equity shares for the investors to subscribe.
The right issue and bonus issue are other types of issues which the companies utilise to raise capital and as cash alternatives in different circumstances.
The IPOs and FPOs are utilised to arrange funds from the general public and there is a misconception that IPO and FPO are similar but there is some difference between IPO and FPO.
The companies raise long term funds from the capital market for their day to day operations, new project finance and expansion purpose. In order to raise public funds, the companies or government issue the securities like bonds, debentures or shares in the primary market.
There are multiple types of issues through which the organisations float stocks/ shares in the capital market, IPO and FPO are some of those mechanisms of issuing stocks in the capital market.
