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Study Notes - Allotment of Shares

June 19, 2020

There is many ways to allot/ issue fresh share which are discussed below.

  1. Through Private Placement as per section 42 of the companies act 2013
  2. Preferential allotment
  3. Right Issue
  4. Bonus Issue
  5. Conversion of loan or debenture in to share capital
  1. Issue of new share through Private Placement Issue of share through private placement offer means an offer for issuing share to a particular group of person or person through an offer letter

    Condition for making a private placement is that the offer shall not be made to more than 200 persons and the offer shall not be less than of Rs. 20,000 in face value of the share.
    As per section 42 of The Companies Act 2013.

    While preparing an offer letter to keep in mind following things

    • Offer letter shall be in PAS-4 and application shall be serially numbered
    • Offer price and basis of calculation shall be disclosed in a notice in explanatory statements
    • Offer size should not be less than Rs. 20,000 of the face value
    • Maintain the record of such offer in PAS-5
    • Offer letter should contain detail of business carrying on or to be carried on
    • Management details and their qualification
    • List of default if nay made in payment of statutory dues
    • Time period of offer
    • Complete detail of valuer of business
    • Related party transaction
    • Details of promoter
    • Auditor report financial statement
    • Remuneration to KMP
    • Capital structure and change in shareholding if any along with new issue before private placement
    • List of compliances made under the companies act

    Following are the steps to be taken to give the effect of private placement

    • Step 1. The private placement must authorise by Article of Association of company
    • Step 2. Call for board meeting for discussion about making private placement
    • Step 3. Prepare a list of persons or groups of persons to whom the offer is to be made
    • Step 4. Call and hold EGM and pass a special resolution
    • Step 5. File E from MGT 14 with Registrar of Companies along with attachment notice of EGM, Copy of Special resolution passed, and minutes
    • Steps 6. Issue offer letter in PAS-4
    • Step 7. File PAS-4 to Registrar of Companies within 30 days
    • Step 8. call board of director meeting for allotment of share
    • Step 9. File PAS-3 with Registrar of Companies for allotment of share
    • Step 10. Issue share Certificate
  2. Right Issue Right share means the issuance of more shares to existing shareholders in the proportion of their holding at a lesser price.
    For issue of right share

    1. Right issue must be authorised by article of the company
    2. Board of directors shall call and hold a board meetings to give the effect of the right share issue and in the board meeting director shall decide the number of shares to be issued through the right issue and price of right issue
    3. Call and hold General meeting
    4. Issue offer letter to existing shareholder and offer letter shall contain the time period of acceptance of right issue
    5. Take in record the detail of shareholder for their acceptance of right share
    6. File PAS-3 for allotment of share with Registrar of companies
  3. Conversion of loan or debenture in to share capital Section 62(3) of the companies act 2013 loans or debenture issued with a condition that same shall be converted in equity share of the company. At the time of issuance of debenture or raising loans with such condition number of share to be allotted must be mention in letter.
  4. Issue of Bonus Share Bonus share means allotment of further share to existing share holder free of cost. This is the capitalisation of free reserve of the company.

    1. Issue of bonus share must be authorised be Article of the company
    2. Resolution must be passed at general meeting of the company
    3. The company has not made default in paying dues along with interest thereon
    4. Share issued under bonus share scheme must be fully paid

    Bonus share must be paid out of free reserve, securities premium

    1. File PAS-3 for allotment of share to shareholder
    2. Issue share certificate to shareholder

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