Offer for Sale
Also written OFS · Offer for Sale (OFS) · Offer for Sale through IPO
An 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.
In plain language
In an offer for sale, the company is the stage, not the seller. Existing shareholders — promoters, financial institutions, or the government in a PSU — offer part of their holding to the public.
Three things follow, and they carry most of the marks: the share capital does not change, because no new shares are created; the proceeds go to the selling shareholders, not to the company; and the sellers' holding falls while the public's rises.
How it works
Section 3.8.1 sets it against a fresh issue:
| Fresh issue | Offer for sale | |
|---|---|---|
| New shares created? | Yes | No |
| Share capital | Increases | Unchanged |
| Money goes to | The company | The selling shareholders |
| Existing holders' percentage | Falls (dilution) | Sellers' falls; non-sellers' unchanged |
An IPO or FPO may be purely one or the other, or a combination.
Where an offer for sale shows up in the workbook:
- Government disinvestment in PSUs — the government offers part of its shares; the proceeds go to the government, the PSU's share capital is unchanged.
- An IPO made entirely through an offer for sale is exempt from the limit that not more than 50 per cent of net tangible assets be held in monetary assets.
- FPOs used to raise public shareholding to meet listing requirements, or by promoters diluting after the IPO lock-in.
- QIPs — the ICDR definition of a QIP includes an offer for sale by promoters or the promoter group on a private placement basis, which may be used to achieve minimum public shareholding.
A worked example
Illustrative figures. A profitable unlisted company has 5 crore shares of Rs 10 each. The promoter family holds 4 crore; a private equity fund holds 1 crore. The IPO is priced at Rs 250.
The offer: the PE fund sells its entire 1 crore shares and the promoters sell 0.5 crore.
Shares sold = 1.5 crore
Money raised = 1.5 crore × Rs 250 = Rs 375 crore
to the PE fund = 1.0 crore × 250 = Rs 250 crore
to the promoters = 0.5 crore × 250 = Rs 125 crore
to the company = Rs 0
Share capital after = 5 crore shares × Rs 10 = Rs 50 crore (unchanged)
Promoter holding = 3.5 ÷ 5 = 70%
Public holding = 1.5 ÷ 5 = 30%
An investor reading this red herring prospectus should notice that none of the Rs 375 crore funds the business. That is not wrong — the workbook describes exit for early investors as one of the functions of the primary market — but it is a different proposition from a company raising money to grow.
Why NISM asks about it
Chapter 3 (Primary Markets) defines the offer for sale in section 3.8.1 with a worked example and the PSU disinvestment illustration; it appears again under eligibility (section 3.7.1), FPOs (3.8.2) and QIPs (3.17.1). The chapter's sample question asks where the funds raised in an offer for sale go — the answer is the existing shareholders.
Common exam traps
- The company receives nothing from the offer-for-sale portion.
- Share capital is unchanged; only the list of shareholders changes.
- Offer for sale is not dilution of the share count — it is a transfer of existing shares.
- It can sit inside an IPO, an FPO or a QIP.
- Government disinvestment is an offer for sale, not a fresh issue by the PSU.
Where this is taught
- Series XIX-B · Chapter 5: Regulatory Frameworkintroduced here
- Series XXI-B · Chapter 2: Introduction to Securities Marketsintroduced here
- Series XV · Chapter 2: Introduction to Securities Marketintroduced here
- Series XXI-A · Chapter 2: Introduction to Securities Marketsintroduced here
- Series X-A · Chapter 6: Securities Market Segmentsintroduced here
- Series XII · Chapter 3: Primary Marketsintroduced here
Related terms
- Private placementAn issue of securities to a select group of identified investors — institutions, banks, mutual funds — rather than to the public, with fewer formalities and no advertising.
- Further Public OfferA fresh public offer of securities by a company that has already made an IPO — used to raise more capital or, as an offer for sale, to widen public shareholding.
- Initial Public OfferThe first offer of a company's shares to the public — by fresh issue, by existing shareholders selling through an offer for sale, or both — after which the shares must be listed.
- Qualified Institutions PlacementA fast route by which an already-listed company places eligible securities privately with Qualified Institutional Buyers, without the prospectus and timetable of a public issue.
- Red Herring ProspectusThe offer document used in a book-built public issue, containing every disclosure a prospectus carries except the final price or number of shares, filed with the Registrar before the issue opens.
- Sweat equityShares a company issues to employees, promoters or technocrats under Section 54 of the Companies Act, 2013, to reward their contribution rather than to raise fresh capital.
- Strategic SaleAn AIF's exit by selling its stake in a portfolio company to a corporate buyer in the same or an adjacent industry — usually the second most preferred exit after an IPO.
- Secondary SaleAn AIF exit in which it sells its stake in a portfolio company to a third party — often another AIF, such as a later-stage PE fund taking over from a VC fund — rather than exiting through an IPO.
- Offer for sale in an IPOThe tax rule that gains on unlisted shares sold to the public through an IPO's offer-for-sale route are taxed under Section 112A, as if the shares had always been listed and STT-paid.
- Fresh issue of sharesNew 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.