Category Archives: Chapter IV – CA2013

SHARE CAPITAL AND DEBENTURES

Share – an abstract God


There is a common property of the God, Rupee and Shares? I replied. The question was how a share look like. Though it may be hard to believe but these three have an ultimate abstract only. You can see an idol of the God or gods, a note of one rupee or more rupees, a certificate of one or more shares, never the God, Rupee and Share (in a normal life). We will discuss a share in following paragraphs.

Continue reading

CORONA AMENDMENTS UNDER THE COMPANIES ACT, 2013


We firstly ignore negative news going to effects us. Secondly, we undermine the impact. Third, we start fighting. Humanity since 2017 knew and ignored about 73 corona viruses waiting to affect humanity. It is changing our life and law. I wrote a post on initial restrictions going to impact corporate compliances on 13th March 2020 which I considered now outdated. Here are measures the Ministry of Corporate Affairs announced:

Continue reading

Share Certificate and Family Company


Away from strictly legal structure know to us, we students of Indian corporate laws know specific classes of companies  – Husband-wife company, Family company, friends basically, and company – “basically partnership” etc. Nothing is defined but all these terms. The basic character of these companies is the utmost trust and faith at the time of incorporation. Due to this, we receive specific queries like:

Is it mandatory to issue a share certificate if both/all the directors are shareholders?

Continue reading

FOLIO NUMBER


Folio number is one of the number a common shareholder of a company concerns. In this era of dematerialisation folio may not of much concern for a seasoned investor but it certainly have value for shareholders and entrepreneur having medium small and micro sector companies. Every shareholder found this number at his share certificate and read it distinctive numbers of shares. A folio number once allocated never changes until a person remains a shareholder in the company.

The folio number also puzzle young companies secretaries how to allocate a folio number to a shareholder. This post briefly touches the subject.

Continue reading

Election of Directors – Companies limited by Guarantee without Share Capital


I received this interesting question on Quora and replied here. Other replies to the answer prompt me to post a short write up here on my blog. It seems it is a quite confusing and lesser explored area of most of us. We all students of corporate law at least once wonder about it and sometimes continue to do so.

The base question is – “How to decide voting rights of members in a guarantee company not having share capital?”

Here, before coming to the main question, it is prudent to discuss briefly the concept of the member under the Companies Act, 2013. Most of us use the terms members and shareholders as interchangeable. It is not so. All shareholders are generally members, but all members are not shareholders. When we say so, we usually think about shareholders pending registration of transfer or transmission. We miss 50% of the theoretical portion of the subject – Company limited by guarantee.

According to clause (55) of Section 2 the “member”, in relation to a company, means—

(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become a member of the company, and on its registration, shall be entered as a member in its register of members;

(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company; and

(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.

Membership of a company may or may not be in the form of shareholding. Membership is transferable. In the case of a company limited by shares, a member may transfer his membership by transfer of share. In the case of a company limited by guarantee, a member may transfer his membership by just transferring membership. If a reader is confused about such transfer of share, he may just discuss himself about a transfer of shares not fully paid.

As I mentioned some of my earlier answers on the Quora and on my blog, a company limited by shares and a company limited by guarantee have no practical difference except one. A reader may look into the definition given here as the footnote[1].

May you for a moment consider a company having a share capital with all members decided to pay only at the time of liquidation or winding up. It is akin to a guarantee company. A company with uncalled unpaid shares has no practical difference with a guarantee company. ( see footnote [2])

The voting rights in a guarantee company may be decided on the basis of the ratio of guarantee or say the amount of percentage of guarantee given by a member against total guarantee given to the company by all member combine.

A, B, C and D may form a guarantee company by a promising guarantee of Re.5,000/, Rs. 15,000/-, Rs. 12,000 and Rs 8,000/-respectively. They may have respectively 5, 15, 12 and 8 votes in the General Meeting of the company.

Now, you may understand how to elect directors in general meeting other than first directors.

All practical provisions related to appointment of directors and passing any resolution shall remain the same.

Note -To my understanding, there will not be any differential voting rights in the guarantee company. Readers may also discuss the same.

[1] Two other important definitions in this regards are as under

(21) “company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

(22) “company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

[2] It is a secondary thing that present law requires receiving of money shares subscribed in the memorandum of association by the promoters.

Shareholders in General Meeting


To be legally correct I will say, all Members of a company may attend a General Meeting including the Annual General Meeting of a company. I will discuss, related aspects in brief.

Member

In legal terminology Section 2(55) of the Companies Act, 2013 defines the term member:

“member”, in relation to a company, means—

(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become a member of the company, and on its registration, shall be entered as a member in its register of members;

(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;

(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.”

Members are those shareholders who got shares registered in their name.

A shareholder, who has recently purchased, inherited or received a gift of shares of a company may not become shareholders unless shares are registered in its name. Likewise, a member who has recently sold, died or given a gift of shares may continue as members til such shares are registered in the name of another person.

Please note in case of de-materialised shares, such registration happened immediately.

Notice of (Annual) General Meeting

According to Section 101(3)(a) of the Act, the notice of every meeting of the company shall be given to every member of the company, legal representative of any deceased member or the assignee of an insolvent member.

Quorum

Normally the quorum of a general meeting:

(a) in case of a public company,—

(i) five members personally present if the number of members as on the date of the meeting is not more than one thousand;

(ii) fifteen members personally present if the number of members as on the date of the meeting is more than one thousand but up to five thousand;

(iii) thirty members personally present if the number of members as on the date of the meeting exceeds five thousand;

(b) in the case of a private company, two members personally present shall be the quorum for a meeting of the company.

There is no discrimination among member, who may present. Every member person who received the notice of a general meeting may attend it.

Voting

In normal circumstances, only members who are equity shareholder may vote as per defined voting rights. According to Section 47(1)(a) of the Act, every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company. Presently, it is possible to have different classes of equity shareholders with differential voting rights.

Members, who are preference shareholders may vote in certain circumstances only. Every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital and his voting right on a poll shall be in proportion to his share in the paid-up preference share capital of the company. Where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.

Signing Share Certificate


Subordinate legislation should avoid repeating a provision of the main legislation. Sub-rule (3) of rule 5 of the Companies (Share Capital and Debentures) Rules, 2014 is a good example. Rule 5(3) corresponds to Section 46 of the Companies Act, 2013. Section 46 was amended by the Companies Amendment Act, 2015 with effect from 29th May 2015. Correspondingly, Schedule I of the Companies Act, 2013 also amended this time in the line of these amendments in Section 46. Due to oversight, there was no corresponding amendment in Schedule since 29th May 2015. Now, corrective action is taken by with effect from 10th April 2018.

Continue reading

Debenture w.e.f. 9th February 2018


The Companies (Amendment) Act, 2017 has amended the definition of Debenture with an interesting and confusing way. We will discuss it hereunder.

Continue reading

REDUCTION OF SHARE CAPITAL


Section 66 of the Companies Act, 2013, discussed earlier here, was notified on 7th December 2016 with effect from 15th December 2016. Central Government on 15th December 2016 notified the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 with effect from even date. In this post we will discuss the same. Continue reading

Companies Act 2013 Amended by Insolvency and Bankruptcy Code 2016


A notification issued by Ministry of Corporate Affairs notified section 255 of the Insolvency and Bankruptcy Code, 2016. By virtue of notification of Section 255 of Insolvency and Bankruptcy Code, 2016; the Companies Act, 2013, stands amended in accordance with Schedule XI of the IBC2016 with effect from 15th November 2016. We shall have a short discussion here.

Continue reading

Amendment in Share Capital Rules


Ministry of Corporate Affairs came out with 4th amendment of the year to the Companies (Share Capital and Debentures) Rules, 2013. The Companies (Share Capital and Debentures) 4th Amendment Rules, 2016 published in Official Gazette on 12th August 2016 and came into force from that date, is available online now.

Continue reading

Amendment in Share capital and Debentures Rules


Ministry of Corporate Affairs came with yet another amendment to the Companies (Share Capital and Debentures) Rules, 2014, a third amendment this year to the rules. These rules has been published in official gazette on 19th July 2016 and came into force on that date. In this post, we will discuss these amendments.

Continue reading

WARRANT THE FINANCIAL SWEETENER


In an earlier post here, we discussed warrant in corporate law and Securities law. In another post here we discussed, we discussed issues related to Share warrant and bottle neck making it impossible to issue share warrant as we know in corporate law. In this post we will discuss warrant as in securities law.

Continue reading

SHARE WARRANT – BEARER INSTRUMENT


In last post, we discussed meaning of warrant in with particular reference to share warrant. There are two questions pertinent to issue of share warrant:

  1. May Share Warrants be issued under the Companies Act, 2013 as fresh securities without pre – existence of underlying shares? or
  2. May share warrants be issued under the Companies Act, 2013 as conversion of underlying shares already existence?

In this post, we will discuss these questions.

Continue reading

WARRANT vs WARRANT


In simple dictionary meaning warrant is to make particular activity necessary. In criminal law, warrant is term clearly defined term meaning a legal document permitting an action by authority and making its compliance necessary to the person named therein. In corporate and financial word, warrant is an instrument with different meaning at different financial and legal jurisdiction. In this post, we will discuss these meaning of warrant with reference to Share Warrant.

Continue reading

Amendment in Buyback Law


The Ministry of Corporate Affairs bring out two draft notifications to be published in Official Gazette of India to amend the Act by a draft order under proviso to Section 68(2)(d) and by a draft amendment in the Companies (Share Capital and Debentures) Rules, 2014.

Post Buyback Debt – Equity Ratio:

As we discussed earlier here, Section 68(2)(d) read as under:

“The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves:

Provided that the Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies;”

Now draft notification read as under:

In exercise of the powers conferred under the proviso to clause (d) of sub-section (2) of section 68 of the Companies Act, 2013, the Central Government has notified that –

The debt to capital and free reserves ratio shall be 6:1 for government companies within the meaning of clause (45) of Section 2 of the Companies Act, 2013 which carry on Non Banking Finance Institution activities and Housing Finance activities.

This order give effect that for all companies post buyback Debt Equity Ratio shall be 2:1 except government companies which are Non banking Finance companies or Housing Finance companies.

Unaudited Accounts limited reviewed:

As we discussed earlier here, Rule 17(1)(n)(iii) of the companies (Share Capital and Debentures) Rules, 2014 read as under:

“That the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document;”

The draft of the companies (Share Capital and Debentures) Amendment Rules 2016 insert following proviso to this sub – clause:

“Provided that where the audited accounts are more than six months old, the calculations with reference to buy back shall be on the basis of un-audited accounts not older than six months from the date of offer document which are subjected to limited review by the auditors of the company.”

This is a removal of practical difficulty. Due to present clause, for practical purpose buyback resolution is possible only within six month from date of audited annual account. Now, buyback resolution may be possible any time on the basis of unaudited accounts limited reviewed by the auditors of the company.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.

YEAR’S SECOND AMENDMENT IN SHARE CAPITAL RULES


The Ministry of Corporate Affairs placed here on its website a draft of the Companies (Share Capital and Debentures) Second Amendment Rules, 2015. These amendment Rules will come into force from the date of its publication in Official Gazette.

These amendment rules proposed to amend Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014. Earlier this sub – rule was amended in 18th March 2015 by the Companies (Share Capital and Debentures) Amendment Rules, 2015. Before comment, I read this copy of amended Rule 5(3), with amendment by this amendment rule in bold letters:

Continue reading

Amendment to Share Capital and Debentures Rules


Ministry of Corporate Affairs recently introduced amendment to the Companies (Share Capital and Debentures) Amendment Rules 2015.

These Amendments shall come into force on publication on official gazette i.e.

Application of these Rules:

Rule 3 related to applicability of these rules have been substituted as under:

The provisions of these rules shall apply to –

(a) all unlisted public companies:

(b) all private companies: and

(c) listed companies so far as they do not contradict or conflict with any other regulation framed in this regard by the Securities and Exchange Board of India.

Continue reading

SH – 11


Return in respect of buy-back of securities
Continue reading

SH – 8


Letter of offer
Continue reading