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Merchant Banking and Financial Services, III Semester (MBA), UNIT-2

Definition of Promoter’s Contribution

   Posted On :  07.10.2021 08:53 am

Promoter The person who conceived the idea of starting a business and organizes the setting up of a new company is called promoter of company.

The promoters’ contribution in any issue shall be as per the provisions existing on

Date of filing of prospectus with the Registrar of Company or date of filing of letter of offer with the designated stock exchange.

Date of filing of draft offer document with the SEBI in other cases.

The rates of promoters’ contribution are as under:

                                     

In the above cases a minimum contribution is ` 25,000/- per application for each individual and ` 1,00,000/- from firms & companies.

Promoters’ Contribution Before Public Issue

The promoters should bring in their contribution (including premium) in full at least one day before the public issue opens.

The contribution would be kept in an escrow account with a bank.

The contribution will be released to the company along with the public issue process.

Where the contribution has been brought prior to the public issue and has already been used, the issuer company in their offer document should disclose the use of such funds in the cash flow statement submitted along with offer document.

The shares should be allotted to the promoters against the money received after passing a resolution by the board of directors.

The resolution and a certificate of the charted accountant for having brought in promoters contribution should be filed with SEBI before the issue opens.

Exemption from requirement of promoter contribution is allowed in the following three cases

Where no identifiable promoter/promoter group exists.

Rights issue

Public issue by a company listed on a stock exchange for at least 3 years with a record of dividend payment for at least 3 immediately preceding years.

Lock-in Requirement of Promoters’ Contribution

Any issue of capital to the public

Minimum lock-in period is 3 years

The lock-in-period starts from the date of allotment in the proposed issue.

The lock-in-period ends on completion of three years from the date of commencement of commercial production or date of allotment in the public issue whichever is later.

Public issue by unlisted company, Excess promoter’s contribution would be locked in for 1 year.

Public issue by a listed company, Lock in period is 1 year IV.

Pre-issue share capital of an unlisted company

The pre-issue share capital other than locked in as promoter’s contribution would be locked in for one year from the date of allotment.

The pre-issue share capital other than locked in as promoter’s contribution would be locked in for one year from the date of allotment.

Securities issued on firm allotment basis

Lock in period is one year from the date of commencement of commercial production or date of allotment in public issue or whichever is later.

Requirements with Respect to Lock-in

The locked-in securities may be pledged only with banks/financial institutions as collateral security for loans granted by them.

The minimum promoters’ contribution in public issue locked in may be pledged if the purpose of the loan is for financing the object of the issue.

The locked in shares held by the persons other than the promoters may be transferred to any other person holding locked in shares. However, the locked in period should be continued after the transfer also for the remaining period.

Locked in shares held by promoters may be transferred to and amongst promoter/promoters group or new promoter/persons in control of the company. However, the lock-in-period should be continued in the hands of the transferee for the remaining period.

Securities subjected to lock-in-period should carry the inscription non-transferrable. The duration of the lock-in-period should also be specified.
Tags : Merchant Banking and Financial Services, III Semester (MBA), UNIT-2
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