Share Capital & Borrowings

Share Capital &

Borrowings

21.09.2013

9

Authorized / Subscribed / 

Called‐up / Issued Share Capital  

9 Employees Stock Option‐

Registrar 

9 Officer‐in‐ Default / Registrar 

9 Shares  / Sweat Equity Shares 

Share Capital & Borrowings

Equity Share Capital defined 

first time

With  reference  to  any  company 

limited by shares, means all share 

capital  which  is  not  preference 

share capital 

Share Capital & Borrowings

Continues to be same…………..

‰Nature of Share & Debenture [S44]

‰Distinctive no.

‰Numbering of Shares [S45]

‰Calls on shares made on

Uniform-basis [S49]

‰Company to accept unpaid share

capital although not called up [S50]

Share Capital & Borrowings

‰

_{Certificate issued under Common}

Seal – Prima Facie Evidence –

[S46(1)]

‰ Records of Depository – prima

facie evidence of the interest of

Beneficial Owner

[S46(4)]

‰

_{When shares transferred by}

depository with the intention of fraud

–punishable under Sec-447

[S46(5)]

Certificate of Shares [Sec-46]

™Equity Shareholder --- Vote on

every Resolution

[S47(1)]

™ Preference

Shareholder---Vote on Resolutions directly

affect their rights

[S47(2)]

™ Default in payment of dividend

for

2 years or more on preference

shares----

Vote on every

Voting Rights – Sec-47

Consent >= 3/4th of issued shares

of that class or by Special

Resolution at a separate meeting

[S48(1)]

‰ If provision in MOA or AOA or,

‰ If no provision in MOA or AOA

--- then variation not prohibited by

terms of issue of shares

Variation of Shareholders Rights [Sec-48]

9

Issue of Bonus Share

9

Writing off Preliminary Expenses

9

_{Writing off expenses of, commission}

paid or discount allowed on issue of

shares & debentures

9

Premium on Redemption on any

Redeemable Preference Share or any

Debenture

Application of Premiums received on issue of shares [Sec-52]

Share Capital & Borrowings

FLOW CHART

•

Provisions in Articles 

•

Check Eligibility Criteria

•

Board Meeting Approval 

•

Exhaustive Explanatory Statement 

•

Special Resolution in General 

Meeting 

•

Maintenance of Register 

•

%age Restriction 

•

Exhaustive Reporting in Board’s 

Report 

•

Registered Valuer 

•

Return with Registrar     

Issue of Sweat Equity Shares – [Section-54]

Equity Shares

with Differential

Rights

[S43(a)(ii) & R4.2(1)]

<25%

Issue of Sweat Equity Shares – [Section-54]

Issue of

Sweat Equity

Shares –

[S54

& R4.6]

<15% or RS. 5cr,

whichever is higher

Issue & Redemption of Preference Share Sec-55

Issue &

Redemption of

Preference

Share

[S55(2) &

R4.7]

ISSUES OF EMPLOYEE STOCK

OPTIONS

S62(1)(b) R4.10

Upto 1% Board; Beyond that

SR in GM

•

ISSUES OF SHARES ON

PREFERENTIAL BASIS

S62(1)(c)

R4.11

•

PROVISION OF MONEY BY

COMPANY FOR PURCHASE OF ITS

OWN SHARES BY EMPLOYEES OR

BY TRUST FOR THE BENEFIT OF

EMPLOYEES

S67(3)(b) R4.14

•

BUY BACK OF SHARES OR OTHER

SECURITIES

S68(2)(g) R4.15

Company may with the consent of

holders of 3/4th in value of such

Preference Share

and

With the approval of the Tribunal

Issue further Redeemable Preference

Shares equal to the amount due

including dividend

then

Not in position to redeem Preference Share Sec-55(3)

Share Capital & Borrowings

Transfer & Transmission of Securities S56(4) R4.9

‰

Within 2 months from the date of

incorporation- Subscriber to the

Memorandum

‰ Within 2 months from the date of

allotment – Any other allotment

‰ In case of transfer & transmission –

Within 1 month form the date of receipt

Fraud by Depository or

Depository Participants –

Liable under Sec-447

[Sec-56(7)

Penal Provisions

Section-56(6)

Company

Fine >=5000

extend to 25

lacs

OID

Fine >=

10000 extend

upto 1 Lacs

Transfer & Transmission of Securities S56(7)

Punishment for Personation of Shareholder Sect-57

Imprisonment >= 1year

extend

upto 3

year

And

Fine >= 1 lac

extend to

5 lacs

Punishment for Personation of Shareholder [S57]

Share Capital & Borrowings

Sect-58

‰ The security & other interest

in a public company - freely

transferable

‰ Any refusal to transfer –

Appeal to Tribunal

‰ Any contract or arrangement

between two or more persons in

respect of transfer of securities

-enforceable as a contract.

Refusal of Registration & Appeal against such refusal [S58]

Share Capital & Borrowings

Share Capital & Borrowings

Penalty

Publication of Authorized , Subscribed & Paid-up Capital –

Section-60

New Provision

Prior permission of Tribunal is required

In Consolidation or Division of share capital results in

change in voting percentage of shareholders

Power of Limited Company to alter its Share Capital [S61]

Issue of Bonus Shares Section-63

Issue of Bonus Shares [S63]

On Company   & OID

On Company   & OID

Notice given to Registrar for Alteration of Share Capital [S64]

Share Capital & Borrowings

Unlimited company to provide for reserve share capital on

conversion into limited company S(65)

Reduction of Share Capital Section-66

Reduction of Share Capital 

Powers of Tribunal 

Reduction of Share Capital [S66]

Share Capital & Borrowings

Debentures Section-71

Debentures [S71]

Debentures Section-71

Offer made to public or its members exceeding  500

Share Capital & Borrowings

Continues to be same

Temporary Loans Defined

Restrictions on Powers of Board Section-180

Share Capital & Borrowings

Share Capital & Borrowings

Share Capital & Borrowings

OPPORTUNITIES FOR

COMPANY SECRETARIES

1. Debenture Trustee 

[S71(5)R4.16(2)]

;

2. Drafting of Debenture Trust 

Deed 

[S71(13)R4.16(5) F4.12]

3. Subsequent Nomination by 

Security holders 

[S72(1&2)R4.17(1) F 

4.13]

4. Supersession of Nominee 

OPPORTUNITIES FOR

COMPANY SECRETARIES

5. Registered  Valuer  (services 

will  be  required  at  the  time 

of  SES,  ESOS,  Pref.  Shares, 

SwDR, Conversion, Buy Back, 

etc.

6. Custodian Services in Future

7. Employee Trustee S67(3)(b) 

CHALLENGES AHEAD

1.Issue of Shares At Discount

2.Issue of Sweat Equity Shares

3.Board Report becoming

voluminous document

4.% ages under various

categories

5.Cumbersome Certifications

6.Severe Penalties

The Way Out:

1.Individual Level - Professional

Liability Insurance

2. Corporate Level - Professional

Liability Insurance for KMPs

3. ICSI Level - Company Secretaries

Professional Liability Fund (CSPLF)

on the pattern of CSBF

Comments for MCA

1.Rule 4.1,

Second Line Add

“of

India”

at the end.

2.Explanation to Rule 4.1,

need

more elaboration

3.

Rule 4.2(1)(g)

first line the

word ‘convicted’ to be replaced

with ‘peanlised’

4.Rule 4.2(2)(g),

numbering (1)

(a) and (b) need to be differently

numbered.

Comments for MCA

5.The word ‘Private Corporate Bodies’

need to be replaced with ‘Private Bodies

Corporate’ in tables given at 4.2(2)(l),

4.11(2)(d)(xiv)

6.The word ‘Public Bodies Corporate’

need to be inserted in tables given at

4.2(2)(l), 4.11(2)(d)(xiv)

7.The word ‘Company’ need to be

prefixed with the word ‘secretary’ in

second line of 4.4(3)(c), fourth line of

4.5(1)(c)

8.Form No. 4.17 need to be renumbered

as 4.15 in 4.17(10)

Comments for MCA

9The phrase ‘wherein Company Secretary is

appointed under the provisions of the law

otherwise with’ need to be inserted in place of

the word ‘or’

at 4.4(3)(b), 4.6(13)(c),

4.10(10)(c), 4.15(12)(b) & (c), The word

‘Public Bodies Corporate’ need to be inserted

in tables given at 4.2(2)(l), 4.11(2)(d)(xiv)

10The word ‘preference shares’ need to be

inserted in 4.11(1)(b) Exp.(ii)

11‘a debenture trustee’ need to be replaced

with ‘debenture trustee(s)’ in 4.16(1)(c) first

line

Ajay Garg

[email protected]

www.agbcorplegal.com