The Companies Act 2013 define shares, ‘a share in the share capital of a company and includes stock’. Shares is a type of security and in layman’s definition it “one of the equal parts into which a company’s capital is divided, entitling the holder to a proportion of the profits” The Companies Act gives a set procedure for issuing of shares under the act. There are four ways in which shares can be issued :
- Public Issue
- Private Placement
- Rights Issue
- Bonus Issue
PROCEDURE FOR ISSUING OF SHARES:
A Public company can issue shares by way of public issue, rights issue or bonus issue and private placement. For public issuing of shares, the following steps are required to be fulfilled:
- The company must be a registered company with the registrar.
- Prospectus bearing the invitation for buying of shares of the company to the public.
- The prospectus must be submitted to the registrar (SEBI) before publishing.
- The prospectus should have the required information about the company like:
❖ Name of the Directors
❖ Terms of issue
❖ Minimum subscription
❖ Type of investment
❖ Previous years performance
❖ Opening and closing dates
❖ Application form and requisite fees
❖ Call-on dates
❖ Bank details for deposit.
- The Registrar after confirming amenability publishes the prospectus
- After selecting the applicants for allotment of shares, a regret letter is sent to everyone else and share certificate is issued after the share allotment is done.
- The remaining shares are then allocated on call on dates. Depending on the number of shares, the calls are made for the remaining shares.
STATUTORY LAW REFERENCE (INDIAN KANOON):
▪ Section 2(84), Section 23, Section 26, Section 42 and Section 60(1) of Companies Act
▪ Companies (Prospectus and Allotment of Securities) Rules, 2014.
▪ Securities and Exchange Board of India Act, 1992.
▪ I.T Cube India (P) Ltd vs. I.T Cube Inc (2006) 69 SCL 319 (kar)
▪ Khoday Distilleries v. CIT, Civil Appeal 6654/2008
▪ Vodafone India Services Private Limited v. UOI (WP No.871 of 2014, Bombay HC
IMPORTANT DO (S) AND DON’T (S):
▪ Always deal with the market intermediaries registered with SEBI / stock exchanges.
▪ Collect photocopies of all documents executed for registration as a client, immediately
on its execution. Ensure that the documents or forms for registration are fully filled in.
▪ Always mention all the details clearly in the prospectus and certificate
▪ Mention clearly what is the mode of issue of shares.
▪ That the requisite procedure mentioned in the act is followed.