FINANCIAL TREATMENT RELATED TO SHARE CAPITAL (Companies Act, 2013)

Share capital of a company is all about financing for its operations. Company issues its share to raise capital. On allotted shares, company may receive all money against premium and face value of share in one go or in instalment. In present post, we will discuss; call on shares, unpaid share capital, dividend, share premium, shares at discount, sweet equity and preference shares.

CALL ON SHARE OF SAME CLASS TO BE MADE ON UNIFORM BASIS (SECTION 49):

 Any call for any further share capital shall be made on a uniform on all shares falling under that class.

These classes may differ due to different date of issues, voting or other differential right, or due to different amount as paid – up.

ACCEPTANCE OF UNPAID SHARE CAPITAL (SECTION 50):

A company may accept from any member, the whole or a part of amount remaining unpaid on his shares, even if company has not called that amount. For this purpose, company should have  authorised by its articles.

In such a case, the member shall not be entitle to any voting right in respect of the amount paid by him, until that amount has been called us by the company.

Payment of dividend (Section 51):

A company may pay dividend in proportion to the amount paid – up on each share. Again, company should have authorised by its article.

APPLICATION OF PREMIUMS RECEIVED ON ISSUE OF SHARES (SECTION 52):

Where a company issued shares at a premium, a sum equal to the aggregate amount of the premium received, in cash or otherwise, on those shares shall be transferred to a “Security Premium Account” and the provisions relating to reduction of share capital shall apply as if the securities premiums account the paid – up share capital of the company.

However, the securities premium account may be applied by the company –

(a)  towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; or

(b) in writing off the preliminary expenses of the company; or

(c)  in writing off the expenses of, or the commission paid or discount allowed on any issues of shares or debentures of the company; or

(d)  in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or

(e)  for the purchase of its own shares or other securities under Section 68.

The Securities premium account may also be by such class of company as may be prescribed and whose financial statement comply with the accounting standard prescribed –

(a)  in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or

(b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or

(c)  for the purchase of its own shares or other securities under section 68.

DISCOUNT ON SHARES (SECTION 53):

A company shall not issue shares at a discount and any share issued by a company at a discounted price shall be void. However, issued of sweat equity shares is permitted as provided in Section 54.

There is again a penal provision for contravention under this section. Where a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

ISSUE OF SWEAT EQUITY SHARES (SECTION 54):

If following conditions are fulfilled, a company may issue sweat equity shares of a class of shares already issued –

(a)  the issue is authorised by a special resolution passed by the company;

(b) the resolution specified the number of shares, the current market price, consideration and the class or classed of directors or employees to whom such equity shares are to be issued;

(c)  not less than one year has, at the date of such issue, elapsed since the date on which the company had commenced business; and

(d)  Listed company shall follow regulation made by SEBI, and other companies shall follow rules by MCA.

The rights, limitations, restrictions and provisions as are for the time being applicable to equity shares shall be applicable to the sweat equity shares issued under this section and the holders of such shares shall rank pari passu with other equity shareholders.

ISSUE AND REDEMPTION OF PREFERENCE SHARES (SECTION 55):

No company limited by shares shall issue any preference shares which are irredeemable.

All these preference shares shall be redeemable within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed.

However a company may issue preference shares for a period exceeding twenty years for infrastructure projects subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders.

These shall be conditions for issue of preference shares –

(a)  Preference shares shall be redeemed only out of the profit of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of such redemption;

(b) Only fully paid preference shares shall be redeemed;

(c)  Where such shares are proposed to be redeemed out of the profits of the company, there shall out of such profits be transferred a sum equal to the nominal amount of shares to be redeemed to a reserve, called Capital Redemption Reserve Account. The provision of this Act relating to reduction of shares capital of a company shall apply as it the Capital Redemption Reserve Account were paid – up share capital of the company. subject to provisions of this section.

(d)  In case of such class of companies as may be prescribed and whose financial statement comply with the accounting standard, the premium, if any payable on redemption shall be provided for out of the profits of the company, before the shares are redeemed. The premium if any payable on redemption of any preference shares issued on or before the commencement of this Act by any such company shall be provided for out of the profits of the company or pout of the company’s securities premium account before such shares are redeemed. In case of other companies the premium, if any, payable on redemption shall be provided for out of the profits of the company or put of the company’s securities premium account, before such shares are redeemed.

Where company is not in a position to redeem any preference share or to pay dividend, if any; it may issue further redeemable preference shares equal to the amount sue including dividend thereon, in respect of the unredeemed preference shares and on issue of such further redeemed preference shares, the unredeemed preference shares shall be deemed to have redeemed. This means, preference shares may be redeemed by issuing further preference shares. The conditions to be fulfilled are –

(i)           Consent of the holders of three – fourths in value of such preference shares, and

(ii)          With the approval of the Tribunal on petition made in this behalf.

The Tribunal shall, while giving approval under this sub-section, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares

This further issue shall not be deemed to be an increase or a reduction in the share capital of the company.

The capital redemption reserve account may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.

In future post, we will discuss issues related to transfer and transmission of securities.

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• SHARE CAPITAL (Companies Act, 2013) (aishmghrana.me)