Issue Of Shares At Par, At
Premium And At Discount
A company
may issue shares at par, or at a premium, or at a discount.
Issue At Par:
Shares are deemed to have been
issued at par when subscribers are required to pay only the amount equivalent
to the nominal or face value of the shares issued.
Par Value Of Shares:
‘Par
value’ is the notional face value of the shares which a company issues to its
investors.
Issue At
A Premium:
If the buyer is required to pay
more than the face value of the share, then the share is said to be issued or
sold at a premium. The premium cannot be treated as profit and, therefore,
cannot be distributed as dividend. The amount of premium received in cash and
the equivalent of it received in kind must be kept in a separate bank account
known as the ‘Securities Premium Account’. As per SEBI guidelines, 2000 every
company entitled to make a public issue can offer its shares at par or premium.
Issue At
A Discount:
If
the buyer of shares is required to pay less than the face value of the share,
then the share is said to be issued or sold at a discount. Certain conditions
subject to which shares can be issued at a discount:
It is authorized by a resolution, that is,
1. The issue must be of a class of shares already
issued
2. The maximum rate of discount must not exceed 10 per
cent
3. Not less than one year has, at
the date of issue, elapsed since the date on which the company was entitled to
commence business.
4. Issued within two months of the
sanction by the Company Law Board.
5. Every prospectus must mention
particulars of the discount allowed on the issue of shares.
Issue Of Sweat Equity
Shares [Sec. 79A]:
‘Sweat-equity
shares’ means equity shares issued by the company to employees or directors at
a discount or for consideration other than each. ‘Sweat equity shares’ may be
issued for providing know-how or making available intellectual property rights
(say, patents) or value additions, by whatever name called. Conditions: (a)
Must be of a class of shares already issued. (b)Authorised by a special
resolution (c) The resolution specifies the number of shares, current market
price, consideration, if any, and the class or classes of directors or
employees to whom such equity shares are to be issued. (d) Not less than one
year has, at the date of the issue, elapsed since the date on which the company
was entitled to commence business; they should issued in accordance with the regulations
made by the Securities and Exchange Board of India.
Bonus
Shares:
A company may, if the articles so
provide, capitalize profits by issuing fully paid-up shares to the members,
thereby transferring the sums capitalized from the profit and loss account or
reserve account to the share capital [Section 205(3)]. Such shares are known as
bonus shares and are issued to the existing members of the company free of
charge. The issue of bonus shares is regulated not only by the Companies Act,
1956 but also by the guidelines issued by SEBI in this regard.
Right Shares:
The existing members of the
company have a right to be offered shares, when the company wants to increase
its subscribed capital. Such shares are known as “right shares” but they are
not issued free of charge.
Share
Captial
Meaning of share capital: It means
the capital of a company, or the figure
in terms of so many rupees divided into shares of a fixed amount, or the money
raised by the issue of shares by a company.
Nominal, Authorised Or Registered Capital:
This is the sum stated in the Memorandum
as the share capital of a company with which it is proposed to be registered.
This is the maximum amount of capital which it is authorised to raise by
issuing shares, and upon which it pays stamp duty.
Issued Capital:
It
is the part of the authorized capital which the company has issued for
subscription. The amount of issued capital is either equal to or less than the
authorized capital.
Subscribed Capital:
It is that portion of the issued
capital which has been subscribed for the purchasers of the company’s shares.
The amount of subscribed capital is either equal to or less than the issued
capital.
Called-Up Capital:
The company may not call up full
amount of the face value of the shares. Thus the called-up capital represents
the total amount called-up on the shares subscribed. The total amount of
called-up capital can be either equal to or less than the subscribed capital.
Uncalled Capital:
Represents the total amount not
called up on shares subscribed, and the shareholders continue to be liable to
pay the amounts as and when called. The company may reserve all or part of the
uncalled capital, which can then be called in the event of the company being
wound up. It is known as Reserve Capital
or Reserve Liability [ Section 99].
Paid-Up Capital:
Paid-up
capital is the amount of money paid-up on the shares subscribed.
Alteration Of Share Capital:
Section
94 provides that, if the articles authorise a company limited by share capital
may, by an ordinary resolution passed in general meeting, alter the conditions
of its Memorandum in regard to capital to;
1. Increase of authorised share capital : A company
limited by shares if the articles authorise, can increase its authroised share
capital by passing an ordinary resolution.
2. Consolidate and sub-divide shares : Consolidation is
the process of combining shares of smaller denomination, Sub-division of shares
is just the opposite of consolidation.
3. Convert shares into stock and vice versa : Stock
cannot be issued in the first instance. It is necessary to first issue shares
and have then fully paid-up and then convert them into stock. Also stock can be
reconverted into fully paid-up shares by passing a resolution in general
meeting.
4. Diminish share capital : Section 94 provides that a
company may cancel shares and diminish the amount of the share capital by the
amount of the shares so cancelled. This constitutes diminution of capital and
should be distinguished from reduction of capital.
5. Reduce capital : (i) by reducing or extinguishing the
liability of members for uncalled capital. (ii) by paying off returning capital
which is in excess of the wants of the company, (iii) pay off paid-up capital
on the understanding that it may be called up again. (iv) a combination of the
preceding methods. (v) Write off or cancel capital which has been lost or is
not represented by available assets.