Shares of a corporation registered in India are often issued to the overall public (with SEBI approval) by a limited company or are often issued to persons and entities comprising of friends, relatives, business partners, etc., In the event of a Personal Limited Company. Private Limited Companies are prohibited from making any invitation to the general public to subscribe to shares of the corporate. Shares of a Personal Limited Company also cannot be issued to more than 200 shareholders, as per the Companies Act, 2013. All through this article, we glance at a number of the most methods for the issue of shares of a corporation in India, both Private and Public.
PROCEDURE OF ISSUING SHARES FOR PUBLIC COMPANIES
(a) Issuing of Prospectus: Section 26(1) deals with the procedure of matter that should be stated within the prospectus. A prospectus bears an open invitation to the public to buy shares of the corporate. SEBI (Securities Exchange Board of India) is the regulator and thus a duplicate of the company’s prospectus must be submitted before the publication date. The prospectus gives brief information about the company, such as:
- Name of the directors
- Past Performance (including Reports of the company)
- Terms of issue
- Type of investment (for raising capital)
Other details required along with the aforementioned are details opening and closing dates of the share issue, application form, application fees, allotment and call-on dates, minimum shares for application and bank details for deposit are provided in the prospectus. The Registrar after ensuring submission will register the prospectus.
(b) Application of Shares: – After the invitation, applications are often submitted through prescribed form together with an application fee before the deadline mentioned in the prospectus. Allotment of shares is completed with the chosen applicants and the rest of the applicants receive regret letters. Share certificates are issued after the allotment is completed.
(c) Call on Shares: – Call on shares is a way to ensure collection of the remaining shares after the application and allotment as per the provisions of the prospectus. There are a number of calls for the shares depending on the number of people who have subscribed to it.
PROCEDURE OF ISSUING SHARES FOR A PRIVATE COMPANY
(a) Private Placement: – “Private placement” is an offer that invites people to subscribe securities from a company to choose a group of persons other than by the usual way of a public offer by issuing a private placement offer letter which satisfies the conditions laid out in section 42. There are certain conditions that have to be adhered before issuing a Private Placement, some of which are:
- Private Placement should be issued by an offer letter
- A Private Placement should be accompanied with an application form which is properly addressed, it can either be in writing or in the electronic mode but should be sent to the person with 30 days of creating the form according to the Section 42(7).
- Subscribers should have a separate account in the bank from where the subscription should be made.
- No fresh offers could be made unless and until the old ones were withdrawn.
(b) Issue of Shares on Preferential Basis: – Preferential issue means an offer of shares by a corporation to a get person or a bunch of persons on a preferential basis but does not include an offer of shares by the right issue, ESOP, bonus issue etc. The issue of shares on Preferential basis must be solely based on the Article of Association of the Company. The explanatory statement should disclose the mandatory facts about the allotment. Preferential allotment should be made/complete within 12 months of a special resolution.
(c) Right Issues: – This is mentioned in Section 62 of the Companies Act, 2013. A rights issue is a call for participation to existing shareholders to buy additional new shares within the company. this sort of issue gives existing shareholders securities called rights. With the rights, the shareholder can purchase new shares at a reduced price to the market value on a stated future date. the corporate is giving shareholders an opportunity to extend their exposure to the stock at a reduced price.
(d) Conversion of Loans and Debentures into Shares:- A private company may convert loans raised by the corporate or debentures issued by the corporate into shares when it is passed by a special resolution in a meeting, if there is such a term attached to the debentures issued or loan raised by the corporate to convert such debentures or loans into shares within the company, this is specified in Section 62(3) of the Act.
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There are many different methods in which shares are distributed in companies and they are all governed according to the rules and regulations of the Securities and Exchange Board of India as well as The Companies Act, 2013.
The methods which are to be used for a Public Company and the method used for a Private Company are different and should be used accordingly by following all the said conditions, failing to do so will result in an outcome that will not be beneficial to the subscribers.
 Section 26(1), Companies Act,2013
 Section 42, Companies Act, 2013
 Section 42(7), Companies Act, 2013
 Section 62, Companies Act, 2013
 Section 62(3), The Companies Act,2013
This Article is Authored by Chandana Pradeep, 3rd Year, B.B.A LL.B (H), Student of School of Law, University of Petroleum and Energy Studies, Dehradun.