• Srishti Shankar

Further Issue of Share Capital

Updated: Mar 10

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Further Issue of Share Capital

Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered— (a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely: —

(i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right;

(iii) After the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company; (b) to employees under a scheme of employees’ stock option, subject to [special resolution] passed by company and subject to such conditions, or

As the company expands, it looks for ways of capital expansion, so the company turns to the issue of shares. In place of issuing shares to the public at large, which will bring about an imbalance in the voting rights of the existing shareholders, the company resorts to issuing additional shares to the existing shareholders in proportion to its current shareholding. So, this resolves the purpose of additional capital while letting existing shareholders retain their voting rights. By nature, private companies in India are closely held, and Section 58(1) of the Companies Act, 2013 ('the Act') gives a private company the legal authority to include a 'Right of Refusal' clause in its bylaws. Section 58(2), on the other hand, declares categorically that the provisions of Section 58(1) do not apply to public companies with freely transferable shares.

It is clear that companies that issue more shares need to offer their shares to existing shareholders before they can benefit other shareholders. This is a principle recognized in India and other jurisdictions. This policy is designed to prevent shareholders from being treated unfairly. If new shares are issued in proportion to existing holdings without offering new shares to existing shareholders, the company's share of control will be significantly reduced. [6] In addition, the existence of the first veto serves as a significant limitation on the discretion of the director issuing additional shares. [7] In addition, if stock acquisition rights are not granted, existing shareholders will be treated unequally. This is because the additional shares issued at a lower price give outsiders a great deal of flexibility in entering the company, while existing shareholders who pay a higher price to acquire the shares lose unreasonably. Because it suffers from. [8] Therefore, the existence of stock subscription rights guarantees the well-being of existing shareholders, as there is no financial dilution. [9] However, this subscription right applies only for up to 30 days, during which existing shareholders must express their interests.

According to § 62 (1) of the Companies Act 2013, the stock issuance procedure is as follows. Board meetings are sent at least 7 days before the meeting, and must specify agendas for conferences. First Board Meeting Discussion: Board meeting is held and a solution for the rights of rights is passed. The Board can go to the question, as the rights problem does not require shareholder approval. Emissions Brief Offer: When transferring resolution, quotation is issued to all shareholders, and the same is sent across the registered postal or speed rate. A 15 to 30 days window period is required to accept the offers If not accepted before the deadline, the offer will be considered rejected. The offer must be open at least 3 days after the offer letter is issued. File MGT-14: After the board resolution is passed, the company must submit the MGT 14 within 30 days of the board resolution being passed. Form MGT14 is required for public companies. A certified copy of the board resolution must be attached to the MGT14. Receipt of Application Fee: Shareholders must send the accepted application form with the application fee.

2nd Board of Directors Convocation: The company must convene the 2nd Board of Directors and submit an invitation 7 days before the Board of Directors. The required quorum must exist and a resolution on the allocation of shares must have been passed. After deciding to allocate shares, the shares must be allocated within 60 days of receipt of the application. Submitting the Form to the ROC: The company must submit Form PAS3 to the company's registrar within 30 days of the share allocation. The form must be accompanied by a certified copy of the board resolution and a list of authorized persons. In addition, MGT-14 must be submitted for both share allocation and issuance. Issuing a share certificate: You need to issue a share certificate. If the shares are in demat format, the company must notify the custodian of the share allocation without delay. If the shares are held in kind, the share certificate must be issued within two months from the allotment date. The share certificate must be signed by at least two directors. Share certificates will be issued on Form SH1.

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