Application for shares

3 key takeaways

• An application for shares is a formal request to purchase shares in a company.
• It is commonly used during IPOs, rights issues, or other share issuance events.
• The process involves submitting an application form and, often, making a payment for the shares.

What is an application for shares?

An application for shares is the process by which an investor expresses their intention to buy shares in a company. This is typically done during an IPO, where a company offers its shares to the public for the first time, or during a rights issue, where existing shareholders are given the right to purchase additional shares at a discount. The application includes the number of shares the investor wishes to purchase and, usually, the price they are willing to pay.

Importance of an application for shares

The application for shares is an essential part of the capital-raising process for companies. It helps them gauge investor interest and secure the necessary funds for growth, expansion, or other corporate purposes. For investors, applying for shares provides an opportunity to invest in a company and potentially benefit from its future growth and profitability.

How an application for shares works

IPO process:

1. Prospectus: The company issues a prospectus, providing details about the share offering, including the price range, number of shares available, and financial information about the company.
2. Application form: Interested investors fill out an application form, specifying the number of shares they wish to purchase and the price they are willing to pay within the given range.
3. Submission and payment: Investors submit the application form along with the required payment or a commitment to pay upon allocation.
4. Allocation: The company or its underwriters allocate shares to applicants based on demand, often using a lottery or pro-rata basis if the offering is oversubscribed.
5. Notification: Investors are notified of their share allocation and either receive their shares or get a refund for any unallocated funds.

Rights issue process:

1. Rights issue announcement: The company announces the rights issue, detailing the offer terms and the number of additional shares available to existing shareholders.
2. Entitlement: Existing shareholders receive rights to purchase additional shares, typically at a discounted price, based on their current holdings.
3. Application form: Shareholders fill out an application form, indicating the number of additional shares they wish to purchase using their rights.
4. Submission and payment: Shareholders submit the application form and payment for the additional shares.
5. Allocation and notification: Shares are allocated based on the rights issue terms, and shareholders receive their additional shares.

Examples of application for shares

• IPO example: A tech company goes public through an IPO, offering 10 million shares at a price range of $10-$12 per share. An investor fills out an application form to purchase 1,000 shares at $12 per share, submits the form, and pays $12,000. If the offering is oversubscribed, the investor might receive fewer shares than requested, with the excess funds refunded.
• Rights issue example: A manufacturing company announces a rights issue, offering existing shareholders the right to purchase one additional share for every five shares they own at a 20% discount. A shareholder owning 500 shares can apply to buy 100 additional shares at the discounted price by filling out the application form and submitting the payment.

Real-world application

Consider an investor interested in a company’s IPO. After reading the prospectus, the investor decides to apply for 500 shares at the maximum offer price. They complete the application form and submit it with the necessary payment. If the IPO is successful and the investor is allocated the requested shares, they become a shareholder and can potentially benefit from the company’s growth and future dividends.

Understanding the application for shares process is essential for investors looking to participate in IPOs or rights issues. It provides a structured way to acquire shares in a company and become part of its growth journey.

Related topics you might want to learn about include IPO processes, rights issues, and stock market investing. These areas provide further insights into how shares are issued and traded in the financial markets.