Fresh issue of shares
New shares issued by a company to public investors in an IPO or further offer, increasing its issued share capital — as against an offer for sale, where existing shareholders merely sell what they already hold.
In plain language
When a company goes public, the shares sold to the public can come from two different places. They can be brand new shares the company creates. Or they can be existing shares that a current owner sells off.
A fresh issue of shares is the first kind. The company issues new shares directly to public investors. Because these are new shares, the company's total issued share capital goes up, and the money raised goes to the company itself.
An IPO can be a pure fresh issue, a pure offer for sale by existing shareholders, or a mix of both.
How it works
In a fresh issue of shares, the issued share capital of the company increases, and the percentage holding of every existing shareholder who does not participate comes down in proportion, because the same company is now divided among more shares. A company that raises its share count by 50% through a fresh issue, for instance, cuts every non-participating shareholder's percentage stake by a third, even though the number of shares they personally hold has not changed. The money raised goes to the company, to be used for its own purposes.
This is the direct opposite of an offer for sale, where the share capital of the company does not change at all, because no new shares are created — only existing shareholders' shares change hands, and the proceeds go to those selling shareholders, not to the company.
A worked example
A company with 50 lakh shares outstanding decides to raise fresh capital and issues another 10 lakh new shares to the public in its IPO. Its issued share capital rises from 50 lakh to 60 lakh shares — a fresh issue.
Compare this to the same company's promoters instead selling 10 lakh of their own existing shares to the public. The company would still have 50 lakh shares outstanding — unchanged — and the money from the sale would go to the promoters, not the company. That second case is an offer for sale, not a fresh issue.
Why NISM asks about it
Chapter 6 (Securities Market Segments), section 6.1 (Types of Public Issue), defines fresh issue of shares directly against offer for sale, right after introducing the Initial Public Offer. Expect a question asking whether a given IPO structure is a fresh issue, an offer for sale, or a combination, and what happens to share capital and sale proceeds in each case.
Common exam traps
- A fresh issue raises money for the company; an offer for sale raises money for the selling shareholder. This is the single fact the exam tests most on this pair.
- Only a fresh issue changes the company's issued share capital — an offer for sale never does, however large it is.
- A government disinvestment IPO, where the government sells its own shares in a PSU, is an offer for sale, not a fresh issue — a common wrong answer treats all IPOs as fresh issues by default.
Where this is taught
Free preparation for NISM Series X-ARelated terms
- Offer for SaleAn offer of securities by existing shareholders — promoters, institutions, the government — to the public through an offer document. The sellers get the money; the company issues no new shares.
- Rights issueAn offer of new shares at a set price to existing shareholders in a fixed ratio to what they already hold, so that their proportionate stake is not diluted when the company raises fresh capital.
- Dilution of holdingsThe fall in an existing shareholder's proportionate ownership of a company that happens whenever it issues fresh shares to anyone other than that shareholder, in the same proportion.