Вы находитесь на странице: 1из 19

SEMESTER-V CORPORATE LAW

ISSUE OF SHARES

III YEAR B.A., LL.B.(HONOURS)

THE TAMIL NADU NATIONAL LAW SCHOOL,


TRICHY.

SUBMITTED BY SUBMITTED TO
NITHYAVENDAN S Mr.M.L, KAARMUKILAN
BA0140037 FACULTY INCHARGE

1|Page
TABLE OF CONTENT
Introduction
SHARE
TYPES OF SHARES
Equity Shares
Preference Shares
(1) Cumulative and Non Cumulative
(2) Participating & Non-Participating Preference Shares

Chapter 1
SHARE CAPITAL
(A) Authorised Capital
(B) Issued Capital
(C) Subscribed Capital
(D) Called up Capital
(E) Paid-up Capital

Chapter 2
PROCEDURE FOR ISSUE OF SHARES
(A) Issue of Prospectus
(B) Receipt of Applications
(C) Application of Shares
(D) Allotment of Shares
Partial Allotment
Pro-rata allotment
(E) Calls on Shares
(F) CallsinArrears
(G) CallsinAdvance
Minimum Subscription
Chapter 3
TERMS OF ISSUE OF SHARES
Issue of shares at a premium
Issue of shares at a discount
Allotment of Shares

2|Page
Chapter 4
Private Companies to consider when issuing new shares
Private companies with only one class of share
Pre-emption rights on new share
Payment for shares
Post allotment
Chapter 5
Conclusion

TABLE OF CASES

S.NO LIST OF CASES PAGE NO


1 .H. Manabendra shah v. Official liquidator(1977) 47 8
2 P.V.Damodara reddy v, Indian National Agencies Ltd (1945) 15
Comp.cas.148 mad 9

3 Henry v. great northern Rly.co.(1857) 1 De G &J 606. 6

11
4 Hyderabadad Industries Ltd.,In re (2004) 53 scl 376(ap)
11
5 Managalam cement Ltd., In re(2008) 86 SCL 153 (raj).

6 Gackson v. turquand (1869) LR 4HL 305F 11

As amendnded by SEBIA circulars up to 1st august,2014 12


7
Florance land &publick works Ltd(1955) 29 ch.D 421 13
8
Sri gopal jalan and co. v. Calcutta
9 14

3|Page
Title : Issue of Shares

NITHYAVENDAN S

BA0140037

Abstract

In this article it discuss with how share can be issue .The capital of a company is dividable into a
number of individual units of a fixed amount. This unite are known as sharers . In a company
shareholders have a certain rights over the shares. If a share are separated how it can separate
what are the leagal provision are related to company law to separate sharers .why share money
may be called in lump sum. The proceeds of fresh issue of shares (Equity Share and/or
Preference Share) would basically mean the cash realized by way of issue of these shares on
Capital. The fresh issued of shares may be at par or at premium or at discount. The issue price of
shares is normally debited to Goodwill A/c If a company does not have sufficient funds for the
purchase of fixed assets or payment to creditors it may offer and allot its shares to vendors
creditors in lieu of cash. Any allotment of shares against which cash is not to be received is
called issue of shares for consideration other than cash who are eligible people have a rights
over the shares and what are the type of shares. Calls on shares are after the receipt of application
and allotment money the money that remainsunpaid can be called up by the company as and
when it required. Classification of capital ,type of share capital par, premium ,discount .
Different type of shares which can be rise by company equity sharer ,preference sharer. In
preference share what kind of share can be deal .what is call in array call in advance.

KEYWORD; Nominal value or denomination, lump sum, lieu of cash.

4|Page
Issue of Shares

Introduction
SHARE
DEFINITION ;A share has been defined by the Indian Companies Act, under sec.2(46) as A
share is the share in the Capital of the Company.
TYPES OF SHARES
A Company can issue two types of shares Equity and Preference.
(A)Equity Shares: Equity shares mean that part of the share capital which is not a Preference
share capital. It mean all such shares which are not Preference shares. Equity shares are also
called as Ordinary Shares. An equity share is a sharewhich is not a preference share. In other
words, shares which do not enjoy anypreferential right in the payment of dividend or repayment
of capital, are termed as equity or ordinary shares. The equity shareholders are entitled to share
thedistributable profits of the company after satisfying the dividend rights of thepreference share
holders1. The dividend on equity shares is not fixed and it mayvary from year to year depending
upon the amount of profits available fordistribution. The equity share capital may be (i) with
voting rights; or (ii) withdifferential rights as to voting, dividend or otherwise in accordance with
suchrules and subject to such conditions as may be prescribed.

(b) Preference Shares: According to Section 85 of The Companies Act, 1956, a preference
share is one,which fulfils the following conditions :
(a) That it carries a preferential right to dividend to be paid either as afixed amount payable to
preference shareholders or an amountcalculated by a fixed rate of the nominal value of each
share beforeany dividend is paid to the equity shareholders.
(b) That with respect to capital it carries or will carry, on the winding upof the company, the
preferential right to the repayment of capital beforeanything is paid to equity shareholders.
Above two conditions, a holder of the preferenceshare may have a right to participate fully or to
a limited extent in the surplusesof the company as specified in the Memorandum or Articles of
the company.

1
Section 85 of The Companies Act, 1956

5|Page
Thus, the preference shares can be participating and non-participating. Similarly,these shares can
be cumulative or non-cumulative, and redeemable or irredeemable.
(1) Cumulative and Non Cumulative : If in any year the profits are insufficient to pay the
preference dividend then in case of cumulative preference shares this dividend can be paid in the
subsequent year before any other dividend is paid. In other words the right to receive the
dividend goes on accumulating till it is paid. In case of Noncumulative preference shares the
dividend can be paid only in that year. If there are insufficient profits then such preference
shareholders do not get any dividend for that year.
(2) Participating & Non-Participating Preference Shares: Participating preference shares are
entitled to participate in the surplus profits remaining after the payment of (a) Fixed dividend to
Preference shareholders and (b) Dividend to the equity shareholders. They are also entitled to
participate in the surplus funds remaining at the time of winding of the company after payment
of (a) Preference share capital & (b) Equity Share Capital. Non participating preference share
are not entitled to participate in the surplus profits or surplus funds left over at the time of
winding off2.
Statement of problem
How the share can be issue by the company in the form pre, discount, premium . Private
Companies to consider when issuing new shares.
Scop ,objective of significance of study
A salient characteristic of the capital of a company is that the amount on its shares can be
gradually collected in easy instalments spread over a period of time depending upon its growing
financial requirement. The company may proceed for the allotment of shares after fulfilling
certain other legal formalities. Letters of allotment are sent to those whom the shares have been
alloted, and letters of regret to those to whom no allotment has been made. When allotment is
made, it results in a valid contract between the company and the applicants who now became the
shareholders of the company. A limited company may issue the shares in the form of (a) Issue of
Shares for Consideration other than cash or for cash or on capitalization of reserves. (b) Issue of
Shares at par i.e. at face value or at nominal value. (c) Issue of Shares at a Premium i.e. at more
than face value. (d) Issue of Shares at a Discount i.e. at less than the face value.
Research methodology

2
Henry v. great northern Rly.co.(1857) 1 De G &J 606.

6|Page
Its based on doctrinal methodology and general form of issue of share. The data collated in both
primary and secondary source .
Research questions
(1) Varies aspect of issue of share
(2) Forfeiture of shares issued at premium and at discount

Chapter 1
SHARE CAPITAL
(a) Authorised Capital: This is the Maximum Capital which the company can raise in its
life time. This is mentioned in the Memorandum of the Association of the Company. This
is also called as Registered Capital or Nominal Capital.
(b) Issued Capital: Part of the Authorised Capital which is issued to the public for
Subscription is called as Issued Capital.
(c) Subscribed Capital: The issued Capital may not be fully subscribed by the public
Subscribed Capital is that part of issued Capital which has been taken off by the public e.g.
the capital for which applications are received from the public.
(d) Called up Capital: The Company may not need to receive the entire amount of capital
of capital at once. It may call up only part of the subscribed capital as and when needed in
installments. Called up Capital is the part of subscribed capital which the company has
actually called upon the shareholders to pay. Called up Capital includes the amount paid by
the shareholder from time to time on application, on allotment, on various calls such as First
Call, Second Call, Final Call etc. The remaining part of subscribe capital not yet called up is
known as Uncalled Capital. The Uncalled Capital may be converted, by passing a special
resolution, into Reserve Capital, Reserve Capital can be called up only in case of winding up
of the company, to meet the liabilities arising then.
(e) Paid-up Capital: The Called-up Capital may not be fully paid. Some Shareholders may
pay only part of the amount required to be paid or may not pay at all. Paid-up Capital is the
part of called-up capital which is actually paid by the shareholders. The remaining part
indicates the default in payment of calls by some shareholders, known as Calls in Arrears.
Thus, Paid-up Capital is Called-up Capital Calls in Arrears.
Chapter 2
7|Page
PROCEDURE FOR ISSUE OF SHARES
A salient characteristic of the capital of a company is that the amount on itsshares can be
gradually collected in easy instalments spread over a period oftime depending upon its growing
financial requirement. The first instalment iscollected along with application and is thus, known
as application money, thesecond on allotment (termed as allotment money), and the remaining
instalmentare termed as first call, second call and so on. The word final is suffixed to thelast
instalment. However, this in no way prevents a company from calling thefull amount on shares
right at the time of application.

(a) Issue of Prospectus: Whenever shares are to be issued to the public the company must issue
a prospectus. Prospectus means an open invitation to the public to take up the shares of the
company thus a private company need not issue prospectus. Even a Public Company issuing
its shares privately need not issue a prospectus. However, it is required to file a Statement
in lieu of Prospectus with the register of companies. The Prospectus contains relevant
information like names of Directors, terms of issue, etc. It also states the opening date of
subscription list, amount payable on application, on allotment & the earliest closing date of
the subscription list.The company first issues the prospectus to the public. Prospectus is an
invitation to the public that a new company has come into existence and it needs funds for
doing business. It contains complete information about the company and the manner in
which the money is to be collected from the prospective investors.
(b) Receipt of Applications:When prospectus is issued to the public, prospective investors
intending to subscribe the share capital of the company would make an application along
with the application money and deposit the same with a scheduled bank as specified in the
prospectus. The company has to get minimum subscription within 120 days from the date of
the issue of the prospectus. If the company fails to receive the same within the said period,
the company cannot proceed for the allotment of shares and application money should be
returned within 130 days of the date of issue of prospectus.
(c) Application of Shares: A person intending to subscribe to the share capital of a company
has to submit an application for shares in the prescribed form, to the company along with the
application money before the last date of the subscription mentioned in the prospectus.
OverSubscription: If the no. of shares applied for is more than the no. of shares offered to

8|Page
the public then that is called as over Subscription3. UnderSubscription: If the no. of shares
applied for is less then the no. of shares offered to the public then it is called as Under
Subscription.

(d) Allotment of Shares:


If minimum subscription has been received, the company may proceed for the allotment of
shares after fulfilling certain other legal formalities. Letters of allotment are sent to those
whom the shares have been alloted, and letters of regret to those to whom no allotment has
been made. When allotment is made, it results in a valid contract between the company and
the applicants who now became the shareholders of the company4.

After the last date of the receipt of applications is over, the Directors, Procide with the
allotment work. However, a company cannot allot the shares unless the minimum
subscription amount mentioned in the prospectus is collected within a stipulated period. The
Directors pass resolution in the board meeting for allotment of shares indicating clearly the
class & no. of shares allotted with the distinctive numbers. Then Letters of Allotment are
sent to the concerned applicants. Letters of Regret are sent to those who are not allotted any
shares & application money is refunded to them.
Partial Allotment: In partial allotment the company rejects some application totally,
refunds their application money & allots the shares to the remaining applicants.
Pro-rata allotment: when a company makes a pro-rate allotment, it allots shares to all
applicants but allots lesser shares then applied for E.g. If a person has applied for three
hundred shares he may get two hundred shares.
(E) Calls on Shares: The remaining amount of shares may be collected in installments as
laid down in the prospectus. Such installments are called calls on Shares. They may be
termed as Allotment amount, First Call, Second Call, etc.
(F) CallsinArrears: some shareholders may not pay the money due from them. The
outstanding amounts are transferred to an account called up as Calls-in-Arrears account.

3
H.H. Manabendra shah v. Official liquidator(1977) 47
4
P.V.Damodara reddy v, Indian National Agencies Ltd (1945) 15 Comp.cas.148 mad

9|Page
The Balance of calls-in-arrears account is deducted from the Called-up capital in the Balance
Sheet.
(G) CallsinAdvance: According to sec.92 of the Companies Act, a Company may if so
authorized by its articles, accept from a shareholder either the whole or part of the amount
remaining unpaid on any shares held by them, as Calls in advance. No dividend is aid on
such calls in advance. However, interest has to be paid on such calls in advance.

Minimum Subscription
The minimum amount that, in the opinion of directors, must be raised to meet the needs of
business operations of the company relating to:
the price of any property purchased, or to be purchased, which has to be metwholly or
partly out of the proceeds of issue;
preliminary expenses payable by the company and any commission payablein connection
with the issue of shares;
the repayment of any money borrowed by the company for the above twomatters;
working capital; and
Any other expenditure required for the usual conduct of business operations. It is to be
noted that minimum subscription of capital cannot be less than 90% of the issued
amount according to SEBI (Disclosure and Investor Protection) Guidelines, 2000. If this
condition is not satisfied, the company shall forthwith refund the entire subscription
amount received. If a delay occurs beyond 8 days from the date of closure of subscription
list, the company shall be liable to pay the amount with interest at the rate of 15%
[Section 73(2)].
Shares of a company are issued either at par, at a premium or at a discount.Shares are to be
issued at par when their issue price is exactly equal to theirnominal value according to the terms
and conditions of issue. When the sharesof a company are issued more than its nominal value
(face value), the excessamount is called premium . When the shares are issued at a price less than
the
face value of the share, it is known as shares issued at a discount.Irrespective of the fact that
shares are issued at par, premium or discount,the share capital of a company as stated earlier,
may be collected in instalments payable at different stages.

10 | P a g e
Chapter 3
TERMS OF ISSUE OF SHARES: A limited company may issue the shares on following
different terms. (a) Issue of Shares for Consideration other than cash or for cash or on
capitalization of reserves. (b) Issue of Shares at par i.e. at face value or at nominal value. (c)
Issue of Shares at a Premium i.e. at more than face value. (d) Issue of Shares at a Discount i.e. at
less than the face value.
ISSUE OF SHARES AT A PREMIUM: The word premium implies something more than
normal. With reference to shares and securities issued by acompany, premium means a sum over
and above the face or par value of a security. It is the amount which isexcess of the issue price of
a share over its face value (or par value) and is referred to as share premium. Whenshares are
issued by a company at a price above their face value (or nominal or par value) then the shares
aresaid to have been issued at a premium. It is the difference between the price at which a
company issues a shareand the face value of a share.5
Section 52 of the Companies Act, 2013 deals with the application of premium received on issue
of shares. Inaccordance with sub-section (1) of section 52, where a company issues shares at a
premium, whether for cashor otherwise, a sum equal to the aggregate amount or value of the
premium on those shares shall be transferredto an account, to be called, the share premium
account and the provisions of this Act relating to reduction ofshare capital of a company shall,
except as provided in this section, apply as if the securities premium accountwere the paid-up
share capital of the company. The securities premium account may be applied by the company6.
(a) towards the issue of unissued shares of the company to the members of the company as fully
paid bonusshares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of
shares ordebentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares
or of anydebentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.

5
In place of sections relating to the companies Act,1956; relevant sections of 2013 act have been substituted.
6
Hyderabadad Industries Ltd.,In re (2004) 53 scl 376(ap)

11 | P a g e
Sub section 3 of section 52 provides that the securities premium account may, be applied by such
class ofcompanies, as may be prescribed and whose financial statement comply with the
accounting standards prescribedfor such class of companies under section 1337,
(a) in paying up unissued equity shares of the company to be issued to members of the company
as fully paidbonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on any issue of
equity shares ofthe company; or
(c) for the purchase of its own shares or other securities under section 688.
If the company is a listed company then the company is required to comply with the provisions
of SEBI (ICDR)
When the shares are issued at a price higher than the nominal value of the shares then it is called
as shares issued at a premium. The amount of premium is decided by the board of Directors as
per the guide lines issued by SEBI9. Such share premium collected by the company is credited to
a separate A/c called as Securities Premium A/c. Although Securities Premium is a profit to
the company, it is not a revenue profit, it is treated as capital profit, which can be utilized only
for the following purposes as per sec. 78 of the Companies Act.
(a) Issue of fully paid bonus shares to the existing shareholders.

(b) Writing off the preliminary expenses of the company.


C) writing off the expenses of issue or the commission paid or discount allowed on any issue of
shares / debentures.

(d) Providing the premium payable on redemption of preference shares or debentures. The
company can utilize the security Premium for any other purpose only on obtaining the sanction
of the court.
ISSUE OF SHARES AT A DISCOUNT:
Section 53 of the Companies Act, 2013, prohibits a company to issue shares at discount except in
the case ofissue of sweat equity shares. Any shares issued by a Company at a discounted price
shall be void.

7
Managalam cement Ltd., In re(2008) 86 SCL 153 (raj).
8
Gackson v. turquand (1869) LR 4HL 305F
9
As amendnded by SEBIA circulars up to 1st august,2014

12 | P a g e
Where a company contravenes the provisions of section 53, the company shall be punishable
with fine whichshall not be less than one lakh rupees but which may extend to five lakh rupees
and every officer in default shallbe punishable with imprisonment for a term of which may
extend to six months or with fine which shall not be lessthan one lakh rupees but which may
extend to five lakh rupees, or with both.
The Companies Act, permits issue of shares at a discount subject to the following conditions.
(sec. 79).
(a) The issue must be of a class of shares already issued.

(b) Not less than 1 year has at the date of issue elapsed since the date on which the company
became entitled to commence business.

(c) The issue at a discount is authorized by a resolution passed by the company in the general
meeting and sanctioned by the company law board.

(d) The maximum rate of discount must not exceed 10% or such rate as the company law board
may permit.

(e) The shares to be issued at a discount must be issued within two months of the sanction by the
company law board or within such extended time as the company law board may allow.

The important steps in the procedure of share issue are :


Allotment of Shares
(Implications from accounting point of view)
It is customary to ask for some amount called Allotment Money from theallottees on
the shares allotted to them as soon as the allotment is made.
With the acceptance to the offer made by the applicants, the amount ofapplication money
received has to be transferred to share capital account as ithas formally become the part
of the same.

The money received on rejected applications should either be fully returned tothe
applicant within period prescribed by law/SEBI.

13 | P a g e
In case lesser number of shares have to be allotted, than those applied for theexcess
application money must be adjusted towards the amount due on allotmentfrom the
allottees.

The effect of the later two steps is to close the share application account whichis only a
temporary account for share capital transactions.
Sometimes acombinedaccountfor share application and share allotment calledShare Application
and Allotment Account is opened in the books of a company10.The combined account is based
on the reasoning that allotment withoutapplication is impossible while application without
allotment is meaningless11.
On Calls : Calls play a vital role in making shares fully paid-up and for realizing the full amount
of shares from the shareholders. In the event of shares not beingfully called up till the completion
of allotment, the directors have the authorityto ask for the remaining amount on shares as and
when they decide about thesame. It is also possible that the timing of the payment of calls by the
shareholdersis determined at the time of share issue itself and given in the prospectus.
Two points are important regarding the calls on shares. First, the amounton any call should not
exceed 25% of the face value of shares. Second, theremust be an interval of at least one month
between the making of two calls unlessotherwise provided by the articles of association of the
company.
The words First, Second, or Third must be added between the wordsShare and Call in the
Share Call account depending upon the identity of thecall made. For example, in case of first call
it will be termed as Share First CallAccount, in case of second call it will be Share Second
Call Account and so on.

Another point to be noted is that the words and Final will also be added to thelast call, say, if
second call is the last call it will be termed as Second and FinalCall and if it is the third call
which is the last call, it will be termed as Third andFinal Call. It is also possible that the whole
balance after allotment may becollected in one call only. In that case the first call itself, shall be
termed as theFirst and Final Call.

10
Florance land &publick works Ltd(1955) 29 ch.D 421
11
Sri gopal jalan and co. v. Calcutta

14 | P a g e
The following points should be kept in mind while issuing the share capital for public
subscription.
1. The application money should be at least 5% of the face value of the share.
2. Calls are to be made as per the provisions of the articles of association.
3. Where there is no articles of association of its own, the following provisionsof Table A will
apply:
(a) A period of one month must elapse between two calls;
(b) The amount of call should not exceed 25% of the face value of the share;
(c) A minimum of 14 days notice is given to the shareholders to pay theamount; and
(d) Calls must be made on a uniform basis on all shares within the sameclass.
4. The procedure for accounting for the issue of both equity and preference sharesis the same. To
differentiate between the two the words Equity and Preferenceis prefixed to each and every
instalment.

Illustration 1
Mona Earth Mover Limited decided to issue 12,000 shares of Rs.100 eachpayable at Rs.30 on
application, Rs.40 on allotment, Rs.20 on first call andbalance on second and final call.
Applications were received for 13,000 shares.The directors decided to reject application of 1,000
shares and their applicationmoney being refunded in full. The allotment money was duly
received on all theshares, and all sums due on calls are received except on 100 shares.Record the
transactions in the books of Mona Earth Movers Limited
Illustration 2
Eastern Company Limited issued 40,000 shares of Rs. 10 each to the public forthe subscription
out of its share capital, payable as Rs. 4 on application,Rs. 3 on allotment and the balance on Ist
and final call. Applications were receivedfor 40,000 shares. The company made the allotment to
the applicants in full. Allthe amounts due on allotment and first and final call were duly received.
Give the journal entries in the books of the company.
Chapter 4
Private Companies to consider when issuing new shares
Preliminary

15 | P a g e
The Companies Act 2006 made significant changes to the law regarding share issues which are
complicated by the fact that a number of the changes are subject to transitional provisions. This
means there are different rules for companies that were incorporated before 1 October 2009
(which was the date when the relevant provisions of the 2006 Act took effect). Sadly the
consequence of this is that provisions designed to deregulate the administration of private
companies have made matters significantly more complicated!

Restrictions on share capital


Although the concept of authorised share capital was abolished by the 2006 Act, a company may
still restrict the number of shares that it can issue by including a suitable provision in the
Articles. Indeed for companies incorporated prior to 1 October 2009 the authorised share capital
as set out in the Memorandum or Association will continue to operate as a restriction on the
number of shares that may be allotted.
This restriction will fall away if the Company passes an ordinary resolution removing the
restriction. It will also fall away if either:
1) the Company adopts new Articles that make no reference to a limit; or
2) the Company passes a special resolution altering its Articles authorising the Directors to allot
shares in excess of the stated authorised minimum.
Where the Articles also set out the authorised share capital it is not clear that an ordinary
resolution will be sufficient. In such situations it would be prudent to adopt new Articles.
The logic of the draftsman of the 2006 Act cannot be faulted: a pre-existing company that was
fettered by an authorised share capital should have to pass an (equivalent) ordinary resolution as
would have been needed before 1 October 2009. The complication has arisen because of the
practice of stating the authorised share capital in the Articles as a statement of historical record,
even though this is not required.

Private companies with only one class of share


Historically the Directors of all companies needed authority to allot shares. This was granted by
an ordinary resolution under Section 80 Companies Act 1985. The authority could be given for
up to 5 years and had to state a maximum number of nominal value of shares.

16 | P a g e
Under Section 550 of the 2006 Act a private company, provided it has only one class of share
both before and after the allotment, no longer requires shareholder authority for the Board of
Directors for any allotment of shares. (Section 550 cannot be used by a publiccompanyeven if it
has only one class of shares).
Again, however, there are transitional provisions that are a trap to the unwary. A private
company incorporated before 1 October 2009 can only take advantage of the new Section 550
2006 Act if it has passed an ordinary resolution to that effect.
So for old companies it is necessary first to check to see whether the authority under Section
80 Companies Act 1985 (which is likely to have been for 5 years) has expired or the maximum
number of shares previously authorised, is not to be exceeded.
Pre-emption rights on new share
The 2006 Act (like the 1985 Act) includes statutory rights of pre-emption on new share issues:
Section 561 2006 Act. This gives an existing shareholder a 21 day right of first refusal before
shares are issued to a third party.
The provisions apply to equity securities which are defined so as to include rights to convert
debt or preference shares into equity and to the grant of share options. There is an exclusion for
issues of shares under an employees share scheme.
It is common for private companies to exclude these statutory pre-emption rights and this
continues to be allowed under the 2006 Act. However, it is equally common for Articles of
private companies to incorporate their own bespoke rights of pre-emption: these might allow
shareholders to opt to take excess shares not subscribed by others. So the Articles must be
carefully checked for any pre-emption procedures.
A private or a public company may also exclude Section 561 generally or for a specific share
issue.

Payment for shares


A company cannot allot shares at a discount. Since shares must be given a par or nominal value
(typically 1 per share) this sets the minimum price per share at which shares can be subscribed.
Shares can, however, be issued as partly paid so that not all of the nominal value (plus share
premium, if any) is paid at the time of subscription.

17 | P a g e
Post allotment
Under the 2006 Act, a company should issue a share certificate within 2 months of an allotment
unless the terms of issue stated otherwise, or unless the allotment falls into certain other very
limited exceptions. A Return of Allotments should be made within one month of the allotment.

Chapter 5

Conclusion

If the issue of shares would result in increasing the liability of a person to the company or in
imposing a new liability on a person to the company, the issue will be void if it is done without
that person's written consent.The shares allotted will usually be in an existing share class,
although sometimes there will be reasons to create a new share class. We look at the
main different types of share and the reasons why a company may wish to use them in another
article. Having looked here at the reasons why a company may wish to make a share issue,
elsewhere we go on to look at how to issue shares and the things a company needs to think about
before issuing shares.

Before issuing shares a company and its owners should be aware of the implications of diluting
the existing share capital and bringing someone in as a shareholder. A person investing in a
company should investigate the company carefully, to make sure they know all aspects of the
business they are buying into. In either case, professional help may be required from solicitors or
accountants, and also advice taken as to any tax implications. We cannot give that advice. We
can only deal with the procedural aspects of the transaction.All aspects of share capital for
private companies, including issuing and transferring shares, setting up different classes of
shares, converting shares from one class to another, consolidating and sub-dividing
shares, companies buying their own shares and reductions of capital.

PRIMARY SOURCE
The Companies Act, 1956
The Companies Act,2013
Cases
Borland trustees v steel bros and co ltd [1901] 1 ch. 279 ch.D

18 | P a g e
Rose valley real estate &constitutional limited v security and exchange border of india [2014] 42
St.M.R.V.R. Murugappa chettiar v pudukottai ceremices ltd[1955] 25 comp.cas (mad)
Hill crest realty sdn.Bhd, v. Ram parshotam mitta [2010] 103 SCL 80 (delhi)
SECONDARY SOURCE
Taxmanns book company law (companies act 2013) author Dr.G.K.Kapoor and Sanjay
Dhamija 18th edition page no 153 to 226 ,20th edition page no 198 to315, volume 4 page no 969
to1716

19 | P a g e