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Objects of the Issue in IPOs

The objects of the issue in an Initial Public Offering (IPO) refer to the specific purposes for which a company intends to utilise the funds raised through the public issue. This section, mandatorily disclosed in the offer document or prospectus, provides transparency to potential investors on the use of IPO proceeds.

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Content:

  1. Components of the Object of Issue
  2. Important Points on Objects of the Issue
  3. Investor Checklist – Evaluating the Objects of the Issue
  4. Key Evaluation Criteria
  5. Estimated issue-related Expenses

In simple terms, the objects of the issue answer the key investor question:

“What will the company do with the money it raises?”

Understanding this section is critical because it directly reflects the investment objectives, strategic direction, and financial discipline of the company.

Components of the Object of Issue

The objects of the issue typically cover the deployment of proceeds across several major categories. Each component demonstrates a distinct aspect of the company’s capital allocation plan.

  1. Capital Expenditure (CapEx): Funds allocated to acquire or upgrade plant, machinery, infrastructure, or technology, often aimed at expanding capacity or improving operational efficiency.
  2. Repayment or prepayment of borrowings: Utilising IPO proceeds to reduce existing debt strengthens the balance sheet, decreases interest costs, and improves financial leverage.
  3. Working capital requirements: Ensures the company has adequate liquidity to manage day-to-day operations, such as inventory, receivables, and operating expenses.
  4. General corporate purposes: Provides financial flexibility for administrative and operational expenses, brand building, employee incentives, or unforeseen business needs. Note SEBI restricts this allocation to 25% of gross proceeds in Mainboard IPOs and 15% or ₹1,000 lakhs (whichever is lower) in SME IPOs.
  5. Offer-related expenses: Covers fees, commissions, and expenses associated with the IPO, including payments to merchant bankers, legal advisors, auditors, registrars, and regulatory filing costs.

Important Points on Objects of the Issue

  • The objects of the issue are relevant only to a Fresh Issue of shares, where the company actually receives funds. In an Offer for Sale (OFS), the proceeds go to existing shareholders, not the company.
  • Transparency and clarity in the object statements help investors assess the company’s growth potential and credibility.
  • Overly broad or vague purposes—like “for general business purposes”—may signal weak planning or a lack of focus.
  • Regulatory norms require the disclosure of the deployment schedule and the expected timeline for fund utilisation.
  • A company must provide an IPO proceeds utilisation certificate, confirming that funds have been deployed as per the stated objectives.

Investor Checklist – Evaluating the Objects of the Issue

Before investing, investors should scrutinize the objects of the issue section carefully. Here’s a checklist to evaluate the company’s intent and credibility:

Red Flags to Watch

  • A very high allocation to general corporate purposes — indicating vague usage.
  • Repayment of promoter-related loans instead of funding business expansion.
  • Projects unrelated to the company’s core business activities.
  • No time-bound plan for the deployment of proceeds.
  • Excessive issue-related expenses that erode the amount available for growth.

Key Evaluation Criteria

To evaluate the objects of issue effectively, investors should assess the following points:

Evaluation Point

Investor Focus

Clarity

Are the objects clearly defined (e.g., “Expansion of XYZ Plant”) or left vague?

Proportion

How much of the funds are directed toward productive growth versus debt repayment or expenses?

Strategic Fit

Do the proposed uses align with the company’s business model and long-term strategy?

Execution Capability

Does the company have experience and resources to implement its plans effectively?

Track Record

Has the company previously raised funds, and were they utilised as promised?

A clear, measurable, and well-aligned object enhances confidence in the company’s governance and growth potential.

Part of the IPO gross proceeds is reserved to cover offer-related expenses, which include:

  • Underwriting and merchant banker fees
  • Legal and advisory costs
  • Auditor and registrar fees
  • Printing, advertising, and marketing expenses
  • Regulatory filing and listing fees

These are required to be fully disclosed in the prospectus under the Objects of the Issue section. Transparent disclosure ensures investors understand how much of their money goes directly into business operations versus the costs of raising funds.

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Key Takeaways

  • The objects of the issue serve as a critical link between a company’s strategic goals and investor expectations.
  • They clearly outline why the company is raising capital and how it intends to deploy the IPO proceeds.
  • Transparency and clarity in defining these objects enhance investor confidence and regulatory compliance.
  • For companies, well-articulated objects demonstrate strategic intent, financial discipline, and credibility in capital utilisation.
  • For investors, this section provides valuable insights into the company’s priorities, such as growth expansion, debt repayment, or operational strengthening.
  • Regulatory disclosures around object-wise fund allocation ensure accountability and traceability of proceeds.
  • Balanced allocation among capex, working capital, and general corporate purposes reflects prudent financial planning.
  • Ultimately, a well-defined object of the Issue section reflects the company’s transparency, governance standards, and commitment to long-term value creation.
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Frequently Asked Questions

The objects of the issue in an Initial Public Offering (IPO) refer to the specific purposes for which a company plans to use the funds it raises from investors.

This section, disclosed in the offer document or prospectus, outlines exactly why the company is raising capital and how it intends to deploy the IPO proceeds.

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The objects of the issue are important because they ensure transparency, help investors make informed decisions, and are mandated by regulatory authorities such as SEBI. They clarify how the company intends to use the IPO proceeds, aligning expectations between the issuer and investors.

This information holds significance for both companies and investors, as outlined below:

For Companies:

  • Fundraising Justification: Explains why the company needs capital and how it plans to deploy it.
  • Strategic Communication: Aligns investor expectations with the company’s growth, expansion, or debt-reduction strategy.
  • Regulatory Compliance: A mandatory disclosure under SEBI (ICDR) Regulations to maintain transparency and investor protection.
  • Credibility & Trust: Clearly defined objectives enhance the company’s reputation, accountability, and investor confidence.

For Investors:

  • Transparency: Provides a clear picture of how their money will be utilised.
  • Investment Decision-making: Helps evaluate whether the company’s plans align with their risk-return objectives.
  • Risk Assessment: Highlights the company’s financial priorities—whether focused on growth, debt repayment, or operational support.
  • Accountability: Enables investors to hold the company responsible for the actual utilisation of funds post-listing.
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Yes, a company can change its Objects of the Issue after the IPO, but only under specific regulations and with shareholder and disclosure approvals.

Such changes are governed by the Companies Act, 2013 and SEBI (LODR) Regulations, 2015.

Regulatory Requirements

Aspect

Key Requirement / Regulation

Shareholder Approval

Under Sections 13(8) and 27(1) of the Companies Act, 2013, a change in objects requires a special resolution in a general meeting.

Public Disclosure

The company must publish details of the proposed change in newspapers and notify stock exchanges as per Regulation 30 of SEBI (LODR).

Exit Option for Shareholders

As per Section 27(2) of the Companies Act, 2013 and Regulation 16 of SEBI (ICDR) Regulations, 2018, dissenting shareholders must be given an exit opportunity.

Monitoring & Reporting

Fund utilisation must be monitored by the Audit Committee and certified by statutory auditors under Regulation 32 of SEBI (LODR).
Discuss this question

In an IPO, the total issue may consist of a Fresh Issue, an Offer for Sale (OFS), or a combination of both. While both involve shares being offered to the public, they differ in terms of who receives the proceeds and why the shares are being sold.

Basis of Difference

Fresh Issue

Offer for Sale (OFS)

Nature of Shares

New shares are issued by the company.

Existing shares held by promoters or investors are sold.

Recipient of Proceeds

Funds go to the company, increasing its share capital.

Funds go to the selling shareholders; the company does not receive any money.

Purpose

To raise funds for specific Objects of the Issue such as expansion, debt repayment, or working capital.

To provide liquidity or exit to existing shareholders or investors.

Impact on Share Capital

Increases the company’s paid-up share capital (dilution of ownership).

No change in the company’s share capital (no dilution).

Who Benefits

The company benefits from the inflow of funds.

The selling shareholders benefit from monetising their holdings.

Disclosure in Prospectus

Utilisation of proceeds is detailed under Objects of the Issue.

Details of selling shareholders and number of shares offered are disclosed.

Example Scenario

A company issues new shares to fund a new manufacturing plant.

Promoters sell part of their stake to reduce holding or realise pro
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Offer-related expenses refer to the costs incurred in connection with launching and managing an IPO. These expenses are typically covered from the IPO proceeds and are disclosed separately in the Objects of the Issue section of the prospectus to maintain transparency.

The main components include:

  • Merchant banker and underwriting fees – Charges paid to lead managers and underwriters for managing the issue.
  • Legal and advisory costs – Fees for legal counsel, compliance consultants, and due diligence services.
  • Auditor and registrar fees – Payments to statutory auditors, registrars, and transfer agents handling investor applications and allotments.
  • Printing, advertising, and marketing expenses – Costs related to the design, printing, and distribution of the offer document and promotional materials.
  • Regulatory and listing fees – Payments made to SEBI, stock exchanges, and other regulatory authorities.
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