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Issue Of Shares At Par, At Premium And At Discount-Share & Share Capital
Business Environment and Law-Share & Share Capital
Issue Of Shares At Par, At Premium And At Discount-Share & Share Capital
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A company may issue shares at par, or at a premium, or at a discount.
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.
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’ is the notional face value of the shares which a company issues to its investors.
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.
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,
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.
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.
‘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.
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.
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.
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.
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.
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.
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.
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.
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 is the amount of money paid-up on the shares subscribed.
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.
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.
Tags : Business Environment and Law-Share & Share Capital
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