Notes on Issue of Shares at a premium, at a discount, issue of Sweat Equity Shares, further Issue(Rights issue) of shares, Redeemable preference

shares etc., ISSUE OF SHARES AT A PREMIUM:-There is no limit on premium provided under the Companies Act, but SEBI(icdr)Regu.2009, provides certain conditions on pricing of the issue. -A Company can issue securities at a premium for cash or otherwise than for cash. A sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called The Securities Premium Account. S.78 of the Companies Act, 1956, provides that the securities premium Account of the Company can be applied utilized for the following purposes, namely:a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares. b) for writing off the preliminary expenses of the Company. c) in writing off the expenses of , or the commission paid or discount allowed on , any issue of shares or debentures of the company. d) in providing for premium payable on the redemption of any redeemable preference shares or of any debentures of the company. The amount lying in the Securities premium Account is treated as the Paid up Capital of the Company and The provisions of the Companies Act relating to REDUCTION of Capital shall apply to Securities Premium Account, if it is to be utilized for purposes OTHER THAN what is mentioned above. ISSUE OF SHARES AT A DISCOUNT:- (S.79 of the Companies Act, 1956) The following conditions have to be fulfilled by a Company before issuing shares at a Discount:-The shares to be issue at a discount should be shares which are of a class already issued. -The issue of shares at a discount should be authorized by an ordinary resolution of the members. -After passing the Ordinary resolution, the Company has to apply to the C.Govt. for sanction of the resolution. -The ordinary resolution for issuing the shares at discount should be sanctioned by the Central Government. -The rate of discount should not be more than 10%. The Central Govt. while sanctioning the Ordinary resolution, may allow discount at a higher rate than 10% in the circumstances of the case. -The shares are to be issued at discount only after one year after the Company is entitled to Commence business. -The shares are to be issued at a discount within two months after the date on which the issue is sanctioned by the C.Govt. or within further time extended by the C.Govt. -Every Prospectus relating to the issue of shares shall contain particulars of the discount allowed on the issue of shares or of so much of that discount as has not been written off at the date of the issue of Propectus. ISSUE OF SWEAT EQUITY SHARES:-(S.79A of the Companies Act, 1956) What is a Sweat Equity share? Sweat Equity shares means Equity shares issued by the Company to EMPLOYEES or DIRECTORS at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Very imp A Company under this section means the company incorporated, formed and registered under this Act and includes its subsidiary company incorporated in a country outside India. Conditions for issue of Sweat Equity Shares:-It should be shares of a class already issued. -The issue of Sweat equity is authorized by a Special Resolution passed by the Company in the general meeting. -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. -For the issue of sweat equity shares, at least one year should elapse since the date the Company is entitled to commence business.

-When a Company, listed on a Recognised Stock Exchange , issues Sweat Equity Shares, it has to comply with the Sebi regulations regarding issue of Sweat Equity shares. [SEBI(Employees Stock Option Scheme & Employees Stock Purchase Scheme)] -In case of Companies whose shares are not listed on a recognized Stock Exchange, the sweat equity shares are to issued as per the Unlisted Companies(Issue of Sweat Equity shares) Rules, 2003. POWER TO ISSUE REDEEMABLE PREFERENCE SHARES:-(S.80 of the Companies Act, 1956) -It can be issued by a Company limited by Shares. -It should be authorized to issue redeemable preference shares by the Articles of Association of the Company. -Redemption means, taking back the preference shares by the Company from the shareholders after refunding to them the face value of the shares. The Company may also pay a premium over and above the face value of the shares while redeeming the shares. -From where the Company will refund to the shareholders, the face value of the pref.shares to be redeemed and also the premium, if any? The Shares shall be redeemed only out of a) the profits of the Company which would otherwise be available for dividend or b) out of the proceeds of a fresh issue of shares made for the purposes of redemption As per S.80(4), the old shares are to be redeemed WITHIN ONE MONTH of issue of new shares, if stamp duty is to be avoided on the new issue. If a premium has to be paid on redemption, it shall have to provide out of the following ,before the shares are redeemed , namely, the a) Profits of the Company or b) out of the companys Securities Premium Account Where shares are redeemed OTHERWISE than out of the proceeds of A FRESH ISSUE, an amount equal to the NOMINAL amount of shares redeemed has to be transferred to a reserve fund called the CAPITAL REDEMPTION RESERVE ACCOUNT(CRRA) from out of the profits which would otherwise have been available for dividend. Under the Companies Act, this amount which is transferred to the Capital redemption reserve account is treated as a PAID UP SHARE CAPITAL of the Company . The amount standing to the credit of the CRRA, may be applied by the Company in PAYING UP UNISSUED SHARES OF THE COMPANY to be issued to members of the company as FULLY PAID UP BONUS SHARES. If CRRA is used for any other purpose, it will be treated as a REDUCTION OF CAPITAL and the provisions of the Companies Act, 1956 for Reduction of Capital shall apply. -The Redemption of Preference shares may be effected on such terms and in such manner as may be provided by the Articles of Association of the Company. -It is very important to note that the Redemption of preference shares under this section by a company SHALL NOT BE TAKEN AS REDUCING THE AMOUNT OF ITS AUTHORISED SHARE CAPITAL. - After the Commencement of the Companies (Amendment) Act,1996,(with effect from 01/03/1997), no company limited by shares shall issue any preference shares WHICH IS IRREDEEMABLE OR IS REDEEMABLE AFTER THE EXPIRY OF A PERIOD OF TWENTY YEARS FROM THE DATE OF ITS ISSUE. FURTHER ISSUE OF CAPITAL OR RIGHTS ISSUE(RI):-( S.81 of the Companies Act, 1956) The Company law provisions for Rights issue are applicable only for EQUITY SHAREHOLDERS. If the Directors are allowed to issue shares at their discretion, they may allot new shares to their relations, friends or their nominees and hence to overcome such a possible misuse of their discretion, S.81 of the Companies Act lays down certain conditions for further issue of shares. Further the provisions for RI under S.81 of the Companies Act, 1956 is APPLICABLE only when a Company proposes to increase the subscribed capital of the Company by allotment of further shares (I)-After the expiry of Two years from the formation of the Company OR (2)-After the expiry of one year from the allotment of shares in that Company MADE FOR THE FIRST

TIME after its formation WHICHEVER IS EARLIER (ie before 1 or 2, whichever is earlier) As a corollary, if the increase in the Subscribed capital by allotment of further shares is BEFORE the earlier of the afore mentioned two dates, ie. (1) and (2), then the Provisions of S.81 is not applicable. Now, some of the salient provisions of S.81 dealing with issue of RI by a company are as follows:-Such shares (ie rights shares or further shares) are issued to the persons, who, at the date of the offer , are holders equity shares of the Company. The offer of shares shall be, as nearly as the circumstances admit, in proportion to the capital paid up on those shares at that date. -the Rights offer shall be made by a notice to each of the equity shareholders. The notice shall specify the number shares offered and give a minimum of 15 days time from the date of the offer. If the offer is not accepted within the aforesaid 15 days, the offer will be deemed to have been declined. - the Rights offer aforesaid SHALL BE DEEMED TO INCLUDE A RIGHT EXERCISABLE BY THE PERSON COCERNED TO RENOUNCE THE SHARES OFFERED TO HIM OR ANY OF THEM ( ie part renunciation is allowed) in favour of ANY OTHER PERSON. The Notice mentioned above should SHALL contain a statement of such a right. It is very important at this point to note that, by a clause in the Articles of Association of a Company, the existing shareholders may be deprived of their right to RENOUNCE the rights shares offered to them in favour of any other person, as above. -After the expiry of the time specified in the notice aforesaid or on receipt of an earlier intimation from the person to whom such notice is given (ie existing equity shareholders) that he DECLINES to accept the shares offered, the Board of Directors MAY dispose of them in such manner AS THEY THINK MOST BENEFICIAL TO THE COMPANY. S.81A provides for offer of FURTHER SHARES TO ANY PERSON other than the holders of equity shares at the date of the offer if the following conditions are fulfilled, namely:(1) A special resolution is passed by the company in general meeting to the effect that the rights or further shares may be offered to persons who are NOT the existing holders of equity shares. (2) In case the Board is not able to muster support for a special resolution, then S.81A(b) provides for a way out (lee way). It lays down that in case of the inability to get a special resolution passed as above, (but where the votes in favour of the resolution, including the casting vote, if any of the chairman, exceeds the votes cast against the resolution), the Central Govt., on an application by the Board of Directors, may allow the Company, to issue further shares to persons OTHER THAN the existing equity shareholders. - The right of the equity shareholders, to renounce the Rights shares offered to them does not mean that the time limit of 15 days to exercise the option to accept or renounce the offer, can be extended. - If the person, in whose favour the renunciation of the Rights share was FIRST made by the existing shareholder, declines to take the shares comprised in the renunciation, the existing shareholder CANNOT EXERCISE THE RIGHT OF RENUNCIATION FOR THE SECOND TIME. But these renounced shares, declined to be accepted by the renouncee, can be taken and accepted by the existing shareholder to whom the Rights offer is made. However, in no way, as stated earlier, the time limit of 15days given in the notice can be extended. Non applicability of the provisions relating to Rights shares as contained in S. 81, under certain circumstances, is stipulated in Section 81(3) and is explained as follows:- It is not applicable to a Private Company - Cases where the Share Capital of a company shall stand AUTOMATICALLY increased:-Where a Public Financial Institution, in pursuance of an option attached to the terms of the debenture issued to or loan taken from the said Institution (and such terms are earlier approved by the C.Govt. or are as per rules made by C.Govt), proposes to convert such debentures or loans or part thereof in to shares in the said company and such conversion results in increase in the subscribed share capital of the company. - In case of debentures issued to or loans taken from persons other than the Govt. or to any

institution approved by C.Govt., then the terms of issue containing an OPTION to convert such loans or debentures into share is approved by a SPECIAL RESOLUTION passed by the company before such issue of debentures or raising of loan. -Where a Company has issued debentures to or obtained loan from the C.Govt., the C.Govt. may, by order, in the PUBLIC INTEREST, direct that the debenture or loan or any part thereof may be converted into shares of that company (even if the terms of the issue of debentures or raising of loan does not contain an option to convert) and such conversion has the effect of increasing the subscribed share capital. Important SEBI guidelines on RIGHTS ISSUE (applicable in case of RIGHTS ISSUE by a Listed Company):1) A Listed Issuer making a RI shall announce a Record Date for the purpose of determining the shareholders eligible to apply for the Specified Securities offered under the RI. Specified Securities means equity shares and Convertible Securities. Convertible Securitiy means a Security which is convertible into or exchangeable with equity shares of the Issuer at a LATER DATE with or without the option of the holder of the Security and includes Convertible Debt Instrument. 2) The Issuer shall not withdraw the RI after announcing the Record Date. If the Issuer withdraws the RI after announcing the Record date, the issuer shall not make an application for listing of any of its SS on any Recognised Stock Exchange for a period of 12 months from the Record Date. 3) If an Issuer has OUTSTANDING fully convertible Debt Instruments at the time of making RI, it can make a RI ONLY AFTER MAKING RESERVATION OF EQUITY SHARES OF THE SAME CLASS in favour of the holders of such outstanding Convertible Debt instruments IN PROPORTION TO THE CONVERTIBLE PART THEREOF. These Equity shares reserved for holders of fully or partly Convertible debt instruments shall be issued AT THE TIME OF CONVERSION of such Convertible Debt Instruments ON THE SAME TERMS on which the Equity shares offered in the RI were issued.