Common stocks, also known
as equity share (or equities) carry the ownership of the public entities. The
holders of these securities share in the rising prosperity of the company. The
holder of common stock entitles the voting right on any agenda that are
presented on the annual general meeting of the company. On the other side of
the coin the holder of common stock bears the ultimate risk associate with the
entity. They are the residual claimants of the income. The common stocks are
usually listed in the stock exchange and widely traded in the secondary market.
A corporation whose stock is not publicly traded is said to be closely held.
Their share might be traded via Over-the-Counter (OTC) market.
The Initial Public
Offering (IPO) is the first step to distribute the equity share to the public.
In Nepalese perspective IPO is offered in the face value. At this stage public
bid their money for the equity share offered. In the case of
under-subscription, the company who underwrite the share with the authority
buys the unsubscribed share. However, in the event of over-subscription, the
total number of share is allocated on pro-rata basis. If pro-rata basis is not
possible because of the minimum number of share to be allocated, then the share
will be distributed on lottery method, so that maximum number of investor can
be benefited. The Nepalese law have clearly prescribed that 40% of total public
issue should be kept aside for small retail investor. An investor holding an
equity share is a partial owner of the organization.
