2. Issuing Shares

Securities Premium Account (Sec 52)

• Money collected above the face value of shares must go into this account.
• It can be used for:
  • Issuing fully paid bonus shares.
  • Writing off preliminary expenses.
  • Writing off issue expenses or commission on shares/debentures.
  • Paying premium on redemption of preference shares/debentures.
  • For the buy-back of its own shares.

Prohibition on Discount (Sec 53)

• A company cannot issue shares at a discount.
• Exception: Sweat Equity Shares (Sec 54) can be issued at a discount.

3. Special Share Issues

Sweat Equity Shares (Sec 54)

• Issued to directors or employees at a discount or for non-cash consideration.
• Given for their know-how or providing intellectual property rights.
• Requires a Special Resolution.
• Shares have a lock-in period of 3 years.

Preference Shares (Sec 55)

• A company cannot issue irredeemable preference shares.
• Must be redeemed within a maximum of 20 years from the date of issue.
• Can be redeemed only out of profits available for dividend or proceeds of a fresh issue of shares.
• When redeemed out of profits, an amount equal to the nominal value must be transferred to the Capital Redemption Reserve (CRR).

4. Further Capital & Alteration

Rights Issue (Sec 62)

• Offer of further shares to existing equity shareholders in proportion to their current holding.
• The offer must be open for at least 15 days but not more than 30 days.
• Shareholders have the right to renounce the offer in favour of another person.

Bonus Shares (Sec 63)

• Fully paid-up shares issued to existing members for free.
• Can be issued out of Free Reserves, Securities Premium, or CRR.
• Cannot be issued from Revaluation Reserve.
• Company must not have defaulted on debt payments or statutory dues.

5. Buy-Back of Securities (Sec 68)

• A company buying its own shares.
• Sources: Free reserves, securities premium, or proceeds of a fresh issue (of a different kind of security).
• Limit: Buy-back cannot exceed 25% of the aggregate of paid-up capital and free reserves.
• Requires a Special Resolution.
• A Declaration of Solvency must be filed with the ROC before the buy-back.
• The process must be completed within 1 year from passing the special resolution.

6. Debentures (Sec 71)

• A document evidencing a debt of the company.
• Debentures cannot have voting rights.
• Secured Debentures: Can be issued, but a charge must be created on the company's assets.
• Debenture Trustee: Must be appointed if the offer is made to more than 500 people.
• Debenture Redemption Reserve (DRR): A company must create a DRR out of profits available for dividend to be used for redeeming debentures.