How to Apply for an IPO in the Shareholder Quota | Complete guide

Investing in an Initial Public Offering (IPO) through the shareholder quota is a unique opportunity for eligible investors to acquire shares at an early stage. This quota is usually reserved for existing shareholders of the parent company or group companies, allowing them priority access to the IPO. The process and requirements need to be understood for a smooth application. In this Complete guide, we will talk you through everything you need to know about How to Apply for an IPO in the shareholder quota, from eligibility criteria to step-by-step Guide application procedures through the ASBA Facility.

1. Understand the Shareholder Quota.

In India, the shareholders' quota is defined as the reserve or allotment of company shares kept aside for the existing shareholders during specific financial transactions, like rights issues or public offerings. In this quota, existing shareholders get a preferential right to subscribe to additional shares before offering them to the general public. The Companies Act, 2013, and guidelines of the Securities and Exchange Board of India (SEBI) regulate such transactions. Shareholders' quota is supposed to protect the interest of existing investors, prevent the dilution of ownership, and ensure proportional control in the company. In public sector undertakings (PSUs), special quotas may be reserved for retail investors, employees, and shareholders during public offerings. The shareholders' quota is typically sold at a discount to encourage participation and enhance the interest of its shareholders in the company's expansion and decision-making process. This reflects the commitment towards fair treatment of investors and furthering transparency in corporate governance.

2. Check Eligibility Criteria : 

In India, the shareholder quota for the initial public offering encourages existing shareholders to continue investing in the company. Here is the eligibility criteria under the shareholder quota:

• Ownership :

    An applicant must be an existing shareholder of the company or the parent company in case of a subsidiary as of a record date determined/promulgated by the company.

• Record Date : 

The applicant must have held shares on a record date set by the company to determine the entitlement in the shareholder quota.

• Demat Account :

As the shares are allocated in electronic form, the shareholder must have a valid Demat account to apply under this quota.

• Application Process : 

The application under the shareholder category must be applied separately in the IPO application form. Simultaneously, if the applicant is eligible, they can also apply in any other category like RII.

• Parent Shareholders : 

Shareholders of the parent company are eligible in case the IPO is of a subsidiary, provided this is mentioned in the draft prospectus.

• No Minimum Holding : 

There is no minimum holding criteria generally; holding even one share on the record date will make the shareholder eligible.

3. Required Documents to Apply for an IPO in the Shareholder          Quota

When applying for an IPO under the shareholder quota, having the correct documents ready is essential to streamline the process. Below is a list of commonly required documents.

• Proof of Shareholding ;

A copy of the Demat account statement or shareholding certificate showing ownership of the parent company’s shares as of the record date specified in the IPO prospectus. 

PAN Card A valid Permanent Account Number (PAN) card is mandatory for identity verification and linking to your demat account. 

Bank Account Details A copy of your canceled cheque or bank passbook is needed to link your bank account to process the IPO application and refund (if applicable). 

• Demat Account Details :

Client ID and DP ID details for allotment of IPO shares, provided you qualify under the shareholder quota. KYC Compliance Documents.

• Application Form :

The IPO application form is specifically meant for shareholder quota applications and is usually available on the registrar’s website or provided by your broker. Brokerage Account Login Details (if applying online) 

Ensure access to your trading or brokerage account for online IPO applications. Double-check the IPO prospectus and guidelines issued by the company to confirm if additional documents are required for the specific IPO. 

4. Step-by-step guide application procedures through the ASBA Facility.

The Application Supported by Blocked Amount (ASBA)  facility is mandatory for IPO applications. Here's how to apply for an IPO in the Shareholder Quota step-by-step Guide application procedures through ASBA Facility.

Step 1: Login to Your Bank or Broker Platform :

- Use your net banking platform or trading account.

- Navigate to the "IPO" or "ASBA IPO" section.

Step 2: Select the IPO :

- Choose the IPO you wish to apply for from the list of active IPOs.

- Click on the category as Shareholder or SH quota Ensure that you choose the correct category to qualify under the reserved quota.

Step 3: Enter Bid Details :

- Enter the number of shares you wish to apply for in multiples of the lot size.

- Enter your bid price; a cut-off price is advisable for retail applicants.

Step 4: Confirm and Block Funds :

- Confirm your application and authorize your bank to block the application amount in your account.

- The funds will remain blocked until the allotment process is completed.

step 5: Monitor the IPO Allotment Status

Once the application process is complete:

- Check the IPO allotment status on the registrar's website using your application number or PAN.

- If allotted, shares will be credited to your Demat account.

step 6: Key Points to Remember

- Differential Applications: Shareholders can apply under both the shareholder quota and the retail / general category but only one application per category per PAN.

- Lot Size: Apply for a minimum of one lot and in multiples of the lot size specified.

- Refunds: In case the shares are not allotted, the blocked amount will be released to your bank account.

5. Tips for a Smooth Application Process

• Verify Eligibility:

Confirm that you qualify under the shareholder quota requirements, including minimum shareholding and holding period.

• Keep documents up to date:

Ensure all your documents, especially the KYC, are updated to prevent discrepancies.

• Advise Your Broker:

You may want to check with your broker first since other brokers might have specific requirements or additional forms.

• Prepare in Advance :

All the documents needed have to be gathered before the IPO to ensure a timely and efficient application process.

6. Frequently Asked Questions ( FAQ's)

• Can I apply in both the shareholder and retail categories?

- Yes, but one application is permitted per category under one PAN.

• How will I know whether I am eligible?

- The record date and list of eligible companies can be ascertained from the IPO prospectus.

• Suppose I sell shares of the parent company after the record date. Then do I remain eligible?

- Yes, because you are deemed to hold those shares as long as you hold them on the record date.