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Allotment of Shares

The companies act, 1956 imposes conditions regulating the utilization of the amount collected as premium. Premium cannot be treated as profit and cannot be distributed as dividend. Shares to be issued at a discount must be issued within 2 months of the sanction by the Company Law Board. Rights Shares Further issue of share capital has to be first offered to the already existing shareholders Rights issue two years from the date of incorporation or one year from the IPO whichever is earlier.

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733 views14 pages

Allotment of Shares

The companies act, 1956 imposes conditions regulating the utilization of the amount collected as premium. Premium cannot be treated as profit and cannot be distributed as dividend. Shares to be issued at a discount must be issued within 2 months of the sanction by the Company Law Board. Rights Shares Further issue of share capital has to be first offered to the already existing shareholders Rights issue two years from the date of incorporation or one year from the IPO whichever is earlier.

Uploaded by

Pooja Kapoor
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Allotment of shares

A company may issue shares at par, premium or discount. (When 90% or more is subscribed)
Issue of share at premium Ex The Companies Act, 1956 imposes conditions regulating the utilization of the amount collected as premium. 1.The premium cannot be treated as profit and cannot be distributed as dividend.

2.The amount of premium shall be kept in a separate bank account called securities premium account. 3.Securities Premium Account cannot be treated as free reserve

4.The amount in the securities premium account shall be used only for the purposes mentioned in section 78(2) Section 78(2) The amount in the securities premium account shall be used for To pay for unissued shares of the company to be issued to the members as fully paid bonus shares.

To write off preliminary expenses of the company To write off expenses or the commission paid or discount allowed on any issue of shares or debentures of the company To provide for payment of premium payable on the redemption of redeemable preference shares or debentures.

Issue of shares at a discount


Section 79 provides for certain conditions to be complied with Resolution in general meeting and sanction by company law board. The issue must be of a class of shares already issued The maximum rate of discount must not exceed 10 per cent or such higher rate as prescribed by Company Law Board.

The shares to be issued at a discount must be issued within 2 months of the sanction by the Company Law Board or such extended time as the Company Law Board may specify. Every prospectus at the date of issue must mention particulars of the discount allowed or the exact amount of discount that has been written off.

Allotment of share at par

Ex..

Bonus Share
Shares issued by the company to its existing shareholders free of charge. Issue of bonus when company has large accumulated profits or capital reserve and do not distribute in the form of cash dividends. All form of reserves like revenue reserves such as general reserves and capital reserves such as share premium or asset revaluation reserves can be utilized to issue bonus share.

Rights Shares Further issue of share capital has to be first offered to the already existing shareholders Rights issue two years from the date of incorporation or one year from the IPO whichever is earlier.

As per section 81 of the Companies Act, 1956 the directors of the company must first offer any further issue of share capital to the existing shareholders in proportion to their share holding as nearly as circumstances admit. The company must give notice to the existing shareholders about the option to take up additional shares. The shareholder must have at least fifteen days to decide whether to exercise the option or not. Unless the Articles otherwise provide, the directors must state in the notice of the offer the fact that the shareholder shall have the right to renounce the offer in whole or in part in favor of some other person.

Sweat Equity Shares Section 79A These are equity shares issued by the company to employees or directors at a discount or for consideration other than cash. Sweat equity may be issued for providing technical know how or making intellectual property rights.

Conditions for sweat equity It must be of a class of shares already issued Resolution passed at the general meeting Resolution specifies number of shares, current market price, consideration and the employees or directors to whom the issue is made.

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