Offer for sale vs fresh issue

A fresh issue is when the company creates new shares and sells them to the public. The money goes to the company, so it can be used to grow, repay loans or buy things. Because the number of shares rises, the share of existing owners falls. This is dilution, and it is the same effect as in a private funding round.

The company must state in the prospectus what it will do with the money. This is called the objects of the issue. SEBI also limits how much of the fresh money can go to unspecified general corporate purposes, so the plan must be fairly clear.

An offer for sale is when existing shareholders sell some or all of their shares in the IPO. These sellers are called selling shareholders. They can be promoters, venture capital funds, angel investors or other early backers. The buyers pay the money to the sellers. No new shares are created, so the company's share count does not change and the company's bank balance does not grow.

An OFS is a way for early investors to cash out at last. It also helps founders to take some money off the table. Employees with stock options can sometimes sell through it too.

The split tells you where the money goes. A pure fresh issue means all the proceeds go into the business. A heavy offer for sale means much of the money flows out to earlier owners. Neither is bad by itself. Venture funds must return money to their own investors, so selling is normal. But it helps to ask why the sellers are selling and how much they keep.

Readers often judge an IPO by its headline size. A ₹5,000 crore IPO that is mostly an OFS adds much less to the company's resources than one with ₹5,000 crore of fresh shares. Always check both numbers in the DRHP and the RHP.

Yes. SEBI's ICDR Regulations cap how much of the offer can be an offer for sale by promoters and other large holders in some cases, and the caps depend on the size of the company and the stake. They have been revised more than once, so check the current text of the regulations and the RHP.

Selling shareholders must also have held their shares for at least one year before the DRHP filing, with certain exemptions, such as for shares from the conversion of compulsory convertible instruments. The shares sold must be fully paid up and free of encumbrances.

For venture-backed startups, an IPO is often the first big chance to sell. Funds usually sell only part of their holding. They might sell in the IPO, sell more in the market after lock-in ends, or hold on if they believe the stock will rise. The share they keep is a signal worth reading.

Founders sometimes sell a small portion too. Governance experts watch whether promoters keep a meaningful holding after the IPO, as that suggests they still believe in the business. Promoters of a listed company must also keep a minimum holding locked in, which the guide on IPO lock-ins explains.

The first page of the RHP and the offer summary show the fresh issue size and the OFS size, plus the names of selling shareholders and the number of shares each will sell. The table on the capital structure shows what each holds before and after the IPO. News reports often write it as, for example, fresh issue of up to X crore and OFS of up to Y shares.

Look also at what the fresh money is for. Repaying debt, buying technology or acquisitions are very different uses from spending on brand building, and each has its own risk. This guide gives general information and is not investment, legal or tax advice.

Yes. A separate offer-for-sale route exists on the stock exchanges for promoters of already-listed companies who want to sell shares. It is used to meet the minimum public holding rule, to raise money for the promoter or to let the government sell its stake in a public sector company. The mechanism there is different from an IPO, because the shares are sold through a special window on the exchange rather than a book-built public issue.