By R S BHATIA(FCS)

INTRODUCTIONTYPES OF SHARESMODES OF ISSUE OF SECURITIESPRIVATE PLACEMENTSHARES CERTIFICATETRANSFER & TRANSMISSION OFTRANSFER & TRANSMISSION OFSECURITUESALLOTMENTALLOTMENTPREFERENCE SHARES AND REDEMPTION OF SHARESMEANING OF DEBENTURES & ITS TYPES

As per Section 2(81) of the Companies Act, 2013Securities means the securities as defined in theSection 2(h) of SCRA, 1956 and which states that the

Securities Include:-

o Shares, scrips, stocks, bonds, debentures, debenturestocks etc. in or any incorporated Company or other y p p ybody corporate.

o Derivatives,

o Units issued by any Collective Investment Scheme to the o Units issued by any Collective Investment Scheme to the investors in such scheme.

o Units or any other such instruments issued to theinvestors under any Mutual fund scheme .

o Government Securities or;

o such other instruments, rights or interest therein shall be declared by the Govt to be securitiesbe declared by the Govt. to be securities.

Section 2(84) of the Companies Act,2013 inter alia states that the share means a share in the share capital of a company and includes stock.(The term stock has not been defined in the New Act)

Section 43 of the Companies Act,2013 inter alia states that the Share capital of a Company shall be of two kinds:kinds:-

Equity Share Capital Preference Share Capital

• Equity shares with

ti i htTypes

voting rights

• Equity

ypof

Equity • Equity shares with differential

h

Equity shares rightsshares

NOTE E i h i h diff i l NOTE:- Equity shares with differential rights has been defined under the Rule 4 of Companies (Share Capital & Debentures) Rules,2014

In case of listed Companies Equity shares are issued and aretraded every day in the stock market traded every day in the stock market.

Equity shareholders only get dividend after preferenceshareholders.

The returns on equity shares are not at all fixed It depends on The returns on equity shares are not at all fixed. It depends on the amount of profits made by the Company

The Board of Directors decides how much of the dividends will be given to equity shareholders. Shareholders may acceptor reject the offer at the Annual General Meetingor reject the offer at the Annual General Meeting.

As per section 47 r/w section 50(2) of the Companies Act,2013

every member of a company holding equity share capital(with voting rights) shall have a right to vote on every ( g g ) g yresolution placed before the company

andand

his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of theshare in the paid-up equity share capital of thecompany.

Rule 4 of the Companies (Share Capital and Debentures) Rules,2014) ,

1) No company limited by shares shall issue equity shares with differential rights unless the following conditions are

ti fi dsatisfied:-

a) The issue is authorized by the Articles

b) Issue is authorized by members by Special resolution.( resolution in a listed company to be passed by postal

ballot)

c) Shares with differential rights shall not exceed 26% of the total paid-up equity.

( Paid Up Capital + Shares Issued with Differential Ri ht )Rights)

C h ld h k d f di ib bl d) Company should have track record of distributable profits in last 3 years in F.Y.

e) Company has not defaulted in :-

filing of financial statements and annual returns for 3filing of financial statements and annual returns for 3financial years immediately preceding the financial years in which it is decided to issue such shares.

the payment of a declared dividend,

the payment of term loanthe payment of term loan,

statutory payments etc.

2) The notice of meeting in which S.R is going to be passedshall be accompanied with the Explanatory Statement and

Board’s Report which contains the following:Board s Report which contains the following:-

Total no. of sharesdetails of the differential rightsthe percentage(%) of shares with differential rights to the post issue capital including shares issued with differential post issue capital including shares issued with differential rights

The price of the issueThe diluted EPS. (As per AS-20)

3) The company shall not convert its existing equity share capital with voting rights into equity share s a e cap tal w t vot g g ts to equ ty s a e capital carrying differential rights.

4) The holders of such shares shall enjoy all other rights such as bonus shares, rights shares etc.

Public Company can issue securities through following modes :modes :-

Through prospectus (Public offer)Through prospectus (Public offer)

( it includes IPO, FPO or offer for sale by an existing share holder through issue of prospectus)

Private placementRights IssueB IBonus Issue

Under New Act, Private Company can issue securities through following modes:through following modes:-

Rights IssueRights IssueBonus IssuePrivate Placement

All types of companies (Including OPC) can issue securities under ESOP scheme or Preferential Issue

Private placement means any offer of securities or i it ti t b ib iti t l t g finvitation to subscribe securities to a select group ofpersons by a company ( other than by way of public offer) through issue of a Private Placement offer letter and which satisfies the conditions specifiedu/s 42 r/w Rule 14 of the Companies(Prospectus and Allotment of Securities) Rules 2014Allotment of Securities) Rules, 2014

CONDITIONS :-

• Applicable to all types of securities• Company may make an offer or invitation to subscribe toCompany may make an offer or invitation to subscribe to

securities through issue of a private placement offer letter-Form No. PAS-4

• SR for each type of offer

• Explanatory Statement to give:-p y g

justification of price

List of proposed allottees

t d i h h ldi ttpost and pre issue shareholding pattern

• No offer to more than 200 persons in a financial year

excluding QIBs or Employees under stock option scheme.

• Application form should be serially numbered and

addressed to a specific person.

• Form can be sent in writing / in electronic form• Form can be sent in writing / in electronic form

• Company to maintain all records including PAN, Bank account details etc. in Form No. PAS-5 & to file with ROC (also with SEBI if company is listed) along with Form PAS 4 (also with SEBI if company is listed) along with Form PAS-4 within 30 days from the date of circulation

• Company to maintain all records including PAN, Bank account details etc. in Form PAS-5

• No fresh offer unless previous offer completed/withdrawn/ abandoned. This is applicable even if earlier offer is for different kind of security.

Minimum investment size Rs 20 000/ face value• Minimum investment size Rs 20,000/- face value.

• Separate Bank Account for Application Moneyp pp y• particulars of consideration received if the securities

were issued for consideration other than cash.

As per Section 46 r/w Rule 5 of the Companies (Share As per Section 46 r/w Rule 5 of the Companies (Share Capital and Debentures) Rules,2014

A share Certificate is prima facie evidence of the title of person to such shares.

Share Certificate should be issued to subscriber to M/Awithin 2 months.

Every certificate of shares shall be in Form No. SH-1Minimum subscribed capital brought in within 2 months as share certificates need to be issued within thattime time.

I th f t f / t i i h tifi t In the case of transfer/ transmission share certificate should be issued in One Month.( Earlier 2 Months)

( Rule 6 of said Rules)Duplicate Share Certificates shall be issued in lieu Duplicate Share Certificates shall be issued in lieu of those that are lost or destroyed with the priorapproval of Board and payment of such fees as the Board thinks fit. ( Fee not exceeding Rs.50 per certificate)

The Register of Renewed & Duplicate ShareC tifi t i t i d i F N SH 2Certificates maintained in Form No. SH-2

As per Section 56 of the Companies Act, 2013 r/w Rule 11 of Companies( Share Capital & Debentures) Rules, p ( p ) ,2014 company having share capital shall register a transfer of the securities of the company if:-

o Instrument of transfer of securities shall be in theForm No. SH-4

o Instrument of transfer duly stamped, dated, & executed to be delivered within 60 days of executed to be delivered within 60 days of

execution.

o The provisions of these section shall be applicable toall companies including listed ones.

o If in case of partly paid shares an application of o If in case of partly paid shares, an application of transfer of shares is made by the Transferor, thencompany shall give notice of application to the p y g pptransferee in Form No. SH-5 and transferee must give reply of the notice within 2 weeks from the date of receipt of notice.

Ti i d ithi hi h tifi t f ll o Time period within which certificates of all securities allotted, transferred or transmitted are to be delivered by the company (unless prohibited by any y p y ( p y ylaw)• 2 months from the date of incorporation in case of

subscribers to M/A

• 2 months from allotment in case of allotment of shares.

• 1 month from the date of receipt of transfer deed/intimation of transmission.

6 h f h d f ll i f • 6 months from the date of allotment in case of debentures.

As per section 39 of the Companies Act, 2013 r/wRule 12 of Companies (Prospectus & Allotment ofRule 12 of Companies (Prospectus & Allotment ofSecurities) Rules, 2014

• The amount payable on application on securitiesp y ppshall not be less than 5% of the nominal amount ofthe security.

• The application money should be transferred in t b k t ithi 60 d f th d t separate bank account within 60 days from the date

of such receipt.

• The company should make allotment within 60 days.

• Otherwise refund within next 15 days from the same.

D l i f d b d thi i d 12% i t t • Delay in refund beyond this period :- 12% interest. Also from the 76th day the amount will be treated as deposit.

• Penalty for contravention of section 42 :- Higher of amount involved in the offer or Rs. 2 Cr. And alsorefund all money to subscribers.

• Return of Allotment in PAS-3 (30 days)• Complete list of all security holders containing the • Complete list of all security holders containing the full name, address, PAN & Email ID of such security holders,

• Complete list of all security holders containing the full name address PAN & Email ID of such security holdersname, address, PAN & Email ID of such security holders,

• Shares issued for consideration other than cash should be executed as an agreement which is duly stamped, and if agreement is not reduced to writing then complete details of contract shall be filed with ROC in F N PAS 3 l ith th l ti t Form No. PAS_3 along with the valuation report.

As per Section 43(b) of the Companies Act, 2013 Preference Share Capital means that part of issued capital which carries or

ld f l h h would carry a preferential right with respect to:-

payment of dividend (either as a fixed amount or an payment of dividend (either as a fixed amount or an amount calculated at a fixed rate)

repayment of capital (in case of winding up)

Preference share holders have a right to vote on Preference share holders have a right to vote on resolutions affecting their rights. However, if dividendis not paid on a Class of preference shares for a period of 2 years or more then such shareholders shall have a 2 years or more, then such shareholders shall have a right to vote on all resolutions placed before a meeting of a company

As per section 55 of the Act, 2013 r/w Rule 9 of Companies(Share Capital and Debentures) Rules, 2014 Company limited( p ) , p yby shares :-

• shall issue only redeemable preference sharesshares.

• Preference shares shall liable to be redeemed within a period not exceeding 20 years.

• For infrastructure projects preference shares can be p j pissued for a period of more than 20 years but for less than 30 years.

• If rights of any particular class of shareholders affected • If rights of any particular class of shareholders affected then consent of at least 75% of shareholders of that class is required to pass the resolution.

As per Section 2(30) of the Companies Act, 2013 Debentures Includes:-

Debenture Stock;Bonds or ; Any other instruments evidencing a debt

(whether constituting a charge on the assets of the company or not).

A S ti 71 f th C i A t 2013 / R l 18 f As per Section 71 of the Companies Act,2013 r/w Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014

1) A Company may issue wholly or partly convertible 1) A Company may issue wholly or partly convertible debentures and such issue shall be approved by a Special Resolution passed at a General Meeting.

2) Company cannot issue debentures carrying voting rights.

3) C h ld t D b t R d ti R 3) Company should create Debenture Redemption Reserve Account out of the distributable profits.

4) It is mandatory to appoint debenture trusty if debenture is issued to more than 500 persons

5) Debenture Trust Deed indemnifies or exempts the Debenture Trustee against the loss. However, such deed is void in case of Breach of Trust.

6) The liability of Debenture Trustee shall be exempt6) The liability of Debenture Trustee shall be exemptsubject to the approval of debenture holder holding not less than 3/4th in value of total debentures.

7) Payments of interest & redemption shall be with the terms of the issue.

8) Secured debentures maximum tenure 10 years. But for Infra it is 30 years.

9) Trust Deed Form SH-12.

10) Maintenance of liquid assets of 15% of debentures maturing during the year. This can be used only for g g y yredemption and should not fall below 15%

h i f d b t h ll b d b th 11) such an issue of debentures shall be secured by the creation of a charge, on the properties or assets of the company, having a value which is sufficient for p y, gthe due repayment of the amount of debentures and interest thereon

any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passuwith the first charge on any assets referred to in with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within five convertible into shares of the company within five years: Provided that if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer; 6

Security Point • Secured DebenturesSecurity Point of View

Secured Debentures

• Unsecured Debentures

Tenure Point of View

• Redeemable Debentures

View

Mode of

• Perpetual Debentures

• Convertible Debentures

Redemption Point of View

• Non- Convertible Debentures