ISSUE AND ALLOTMENT OF SHARES

A company may require funds from time to time for running and expanding its business activities.

A company may raise additional capital by way of issue of equity / preference shares or by way of debts like issue of debentures, bonds and loan from the banks and financial institutions.

MODES OF ISSUE AND ALLOTMENT OF SHARES:

A company may issue shares through:

  • Rights issue
  • Private Placement or Preferential allotment
  • Bonus issue
  • Sweat Equity shares
  • Issue of Employee Stock Option Scheme

The process of issue and allotment of shares is different for each kind of issue.

RIGHTS ISSUE:

A right issue is an offer to the existing shareholders of the company to buy additional shares on the basis of shares already held by them.

If any of the existing shareholder of the company is not willing to buy additional shares then he can renounce his rights and the company can allot such shares to any other person who may or may not be the existing shareholder of the company.

Process of issue of shares through right issue:

  1. Hold the board meeting to issue offer letter and approve the issue of shares through right issue.
Offer shall remain open for minimum 15 days and maximum 30 days.
  1. Send the offer letter to the shareholders of the company through registered post or through electronic mode
  2. File Form MGT-14 with the Registrar of Companies within 30 days from the passing of Board Resolution.
  3. Receive the applications and monies from the shareholders of the company.
  4. Hold the board meeting to allot the shares of the company as per the monies received.
  5. File Form PAS-3 within 30 days from the date of passing of resolution for allotment of shares.
  6. Issue share certificates and make the payment of stamp duty.

PRIVATE PLACEMENT AND PREFERENTIAL ALLOTMENT:

A private placement offer is offer to a specific group of people to subscribe to the shares of the company.
Approval of the Board and the Members of the company is required for issue of such shares.

Process of issue of shares through private placement:

  1. Conduct Board meeting to approve the letter of offer and issue of shares through private placement.
  2. Conduct an extraordinary general meeting to take the approval of members of the company for private placement
  3. File Form MGT-14 with the Registrar of Companies.
  4. Obtain the valuation report from the registered valuer.
  5. Issue offer letter (Form PAS-4 ) to whom offer is made.
  6. Receive the application and monies from the persons.
  7. Conduct the board meeting to allot the shares to the persons from whom the company has received share applications
  8. File Form PAS-3 with the Registrar of Companies.
  9. Issue share certificates.

BONUS ISSUE:

A bonus issue is offer to the existing shareholders of the company to apply for additional shares of the company without any consideration. The company does not get additional funds in this case, however there is increase in the share capital of the company.

Process of issue of shares through bonus issue:

  1. Conduct Board meeting to approve the issue of bonus shares, decide the ratio of bonus shares and approve notice of the general meeting of the company.
  2. Conduct an extraordinary general meeting to take the approval of members of the company for bonus issue
  3. File Form MGT-14 with the Registrar of Companies within 30 days from the passing of Board Resolution.
  4. Conduct the board meeting to allot the shares to the persons from whom the company has received share applications.
  5. File Form PAS-3 with the Registrar of Companies.
Issue Share Certificates.

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