Share Capital & Debentures
(i) Kinds of Share Capital, Voting Rights and others
Kinds of Share Capital (Sec. 43)
1. Equity Share Capital:
With Voting Rights
With Differential rights.
2. Preference Share Capital.
Provisions of Section 43 shall not apply where memorandum or articles of association of the private company, so provides.
Voting Rights (Sec. 47);
Equity shareholder has voting rights on every resolution placed before the company
The Voting Right on a poll shall be in proportion to the share an individual holds in the paid-up Preference Share Capital of the Company w. r. t. matters affecting them.
For a matter affecting both Equity and Preference Shareholders, the proportion of voting rights of Equity/Preference shareholders shall be in the same proportion as the paid up capital in respect of Equity/Preference Shares to the total paid up capital.
Preference Shareholders can exercise their voting rights on all resolutions placed before the Company when dividends payable in respect of class of Preference Shares are in arrears for a period of 2 years or more.
Provisions of Section 47 shall not apply where memorandum or articles of association of the private company, so provides.
Application of premium received on issue of shares (Sec. 54);
Transfer Premium to securities premium account
Application of Securities Premium for:
(a) Issue of unissued shares of the company to the members of the company as fully paid bonus shares;
(b) Writing off the preliminary expenses of the company;
(c) Writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;
(d) Premium payable on the redemption of any redeemable preference shares or of any debentures of the company;
(e) Purchase of own shares or other securities under section 68 (buy-back of securities)
Prohibition on issue of shares at Discount ( Sec. 53);
A Company cannot issue shares at discount other than Sweat Equity Shares.
Any share issued by a company other than Sweat Equity Shares at a discounted price shall be void.
(ii) Issue of Sweat Equity Shares (Sec. 54);
A non-listed Company (not requiring to comply with SEBI regulations on Sweat Equity Shares) shall not issue Sweat equity Shares to its Directors/Employees at Discount or for consideration other than Cash for providing Know-How or making available rights in the form of IPRs or Value Additions or whatever name called, unless the issue is authorised by a Special Resolution passed by the Company in the General Meeting.
The Special Resolution authorising the issue of Sweat Equity Shares shall be valid for making the allotment within a period of 12 Months from date of passing Special Resolution. [Rule 8(3)]
Company cannot issue Sweat Equity Shares within 12 months of Commencing its Business. [Sec. 54(c)]
The Company shall not issue Sweat Equity Shares for:
More than15% of the existing paid-up Equity Share Capital in a year
Shares of the Issue Value of Rs.5 Crores
Issuance of the Sweat Equity Shares in the Company shall not exceed 25% of the paid-Up Equity Capital of the Company at any time.
Sweat Equity Shares issued to Directors/Employees shall have a lock-in period of 3 years from the date of allotment.
The valuation of the Sweat Equity Share price shall be determined by a Registered Valuer as fair price giving justification for such valuation.
The amount of Sweat Equity Shares issued shall be treated as a part of Managerial Remuneration if the Sweat Equity Shares are issued to any Director or Manager AND if the same is expensed out as per the Accounting Standards.
(iii) Issue and Redemption of Preference Shares (Section 55.);
Only redeemable preference shares can be issued in following manner:
(a) Redeemable more than 20 years for infrastructure project specified and defined in schedule VI on condition that redemption of specified % of preference shares on annual basis at the option of the preference shareholder.
(b) Redeemable preference less than 20 years for other companies.
A Company defaulting on redemption/payment of dividend on Preference Shares, may issue further Preference Shares in lieu of such defaulting amount, with the consent of the holders of 3/4th in value of such shares along with the consent of the Tribunal.
In case of Companies whose financial statements comply with the Accounting Standards prescribed u/s 133, the premium, if any, payable on redemption shall be provided only out of Profits of the Company, before the shares are redeemed.
(iv) Publication of Authorised, Subscribed and paid-up capital (Sec. 60)
Where any notice, advertisement or other official publication, or any business letter, bill head or letter paper of a company contains a statement of the amount of the authorised capital of the company, such notice, advertisement or other official publication, or such letter, bill head or letter paper shall also contain a statement, in an equally prominent position and in equally conspicuous characters, of the amount of the capital which has been subscribed and the amount paid-up.
(v) Further Issue of Share Capital [Section 62]
Every further issue should be proposed to existing Equity Shareholders in proportion to the existing Paid up Capital.
Further shares can be issued under scheme of ESOP/ to other persons than existing shareholders subject to passing of Special Resolution and such terms as may be prescribed.
For private companies such shares can be issued by passing of ordinary resolution and such terms as may be prescribed.
For issue of shares to persons other than existing shareholders, the price has to be determined by Valuation Report by Registered Valuer.
(vi) Issue of Bonus Shares [Section 63]
A Company may issue fully paid up Bonus Shares to its members, in any manner, out of:
a. Its Free Reserves; OR
b. The Securities Premium Account; OR
c. The Capital Redemption Account.
No issue of Bonus Shares shall be made by capitalising reserves created by Revaluation of Assets.
Bonus Shares shall not be issued in lieu of Dividend
No Company shall capitalise its Profits or Reserves for the purpose of issuing fully paid up Bonus Shares, unless:
a. It has recommendation of the Board, authorised in General Meeting of the Company;
b. Company has not defaulted in payment of interest or principal in respect of Fixed Deposits/Debt Securities issued by it.
c. Company has not defaulted in payment of Statutory Dues of the Employees
d. Partly paid up shares, outstanding if any, are made fully paid up
The company once having announced the decision of its Board recommending bonus, shall not subsequently withdraw the same.
(vii) Power of company to purchase its own securities (Buy-back of shares) [Section 68]
Company may purchase its own shares or other specified securities (referred to as buy-back) out of
a. Free reserves;
b. Securities premium account; or
c. Proceeds of the issue of any shares or other specified securities but not proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
Conditions to fulfil for buy back:
a. The buy-back is authorised by its articles;
b. Special resolution passed at a general meeting of the companyauthorising the buy-back.
Special Resolution not required if
(i) Buy-back is, ten per cent. or less of the total paid-up equity capital andfree reserves of the company; and
(ii) Such buy-back has been authorised by the Board by means of a resolution passed at its meeting;
c. Buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and free reserves of the company:
d. The ratio of the aggregate of secured and unsecured debts owed by thecompany after buy-back is not more than twice the paid-up capital and its free reserves:
e. All the shares or other specified securities for buy-back are fully paid-up;
f. Buy-back of the shares or other specified securities listed on any recognised stock exchange is in accordance with the regulations made by the SEBI
g. Offer of buy-back shall not be made within a period of one year reckoned from the date of the closure of the preceding offer of buy-back
h. Every buy-back shall be completed within a period of one year from the date of passing of the resolution
i. Declaration of solvency (in Form No. SH 10) and Return (in Form No. SH 11) to Registrar and SEBI (in case of listed companies) stating that company is capable of meeting its liabilities and will not be rendered insolvent within a period of one year.
j. Physically destroy the shares or securities within seven days of the last date of completion of buy-back.
k. No fresh issue of same kind of shares or other securities for a period of six months except by way of a bonus issue or conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.
Prohibition for buy back in certain circumstances (Section 70):
a. A Company cannot buy back shares if it had defaulted in:
(i) Repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon OR
(ii) Redemption of Debentures OR Preference Shares OR
(iii) Payment of Dividend to any shareholder OR
(iv) Repayment of any Term Loan or Interest paid thereon to any Financial Institution or Bank.
b. However, if following conditions are met, then the buyback shall be permitted:
(i) Default must have been remedied AND
(ii) Period of 3 years must have been lapsed after such default ceased to subsist.
c. Buy Back is not allowed in case there is default relating to
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(i) Filing of Annual return (Section 92),
(ii) Failure to distribute Dividend (Section 127),
(iii) Non-Compliance relating to the Form and Content of Financial Statements (Section 129) and
(iv) Default relating to Provisions of Declaration of Dividend (Section 123)
(viii) Debentures (Section 71)
Secured Debentures can be issued by Companies subject to certain terms and conditions prescribed in Rules 18(1),
For issue of Secured Debentures, its Date of Redemption shall not exceed 10 years from the date of issue. Secured Debentures issued for Infrastructural Projects may exceed for a period more 10 years but shall not exceed30 years.
Convertible Debentures can be issued only when Special Resolution is passed for the same in the general meeting.
Conditions for appointment of Debenture Trustee - Prescribed in Rules 18(2).