A shareholder quota is a part of an IPO reserved for existing shareholders of the listed parent or promoter company when one of its subsidiaries or group companies comes to the market. The idea is to reward the loyal shareholders of the listed company by giving them a reserved portion in the new issue, and sometimes at a small discount to the issue price. To qualify, an investor must hold shares of the parent on a record date stated in the offer document, and must apply with the demat account in which those shares are held. The reserved portion is generally small, and an individual shareholder can apply up to the retail limit of Rs 2 lakh in this category. If the shareholder category is not fully subscribed, the unsubscribed part can be allotted to other categories. For ordinary investors who are not eligible, the shareholder quota slightly reduces the shares available to the public but does not change the issue price. Always check the record date and eligibility rules in the Red Herring Prospectus, because missing the date means you cannot apply in this category.
Example: A listed company brings its subsidiary to the market and reserves 10 percent of the IPO for its own shareholders. A shareholder holding the parent’s shares on the record date can apply for up to Rs 2 lakh in this reserved category.