Introduction
The issue of shares is a primary method by which a company raises capital from investors. Shares represent ownership interest in the company, and issuing shares is subject to regulatory compliance under the Companies Act, 2013 and the rules framed thereunder.
Types of Shares
Preference Shares
Preference shares have preferential rights regarding dividend and repayment of capital but generally do not carry voting rights.
Modes of Share Issue
Initial Public Offer (IPO)
When a company offers shares to the public for the first time.
Further Public Offer (FPO)
Additional issuance of shares to the public after IPO.
Private Placement
Issue of shares to a select group of persons as per Section 42 of the Companies Act.
Rights Issue
Offering additional shares to existing shareholders in proportion to their existing holdings.
Bonus Issue
Issue of free shares to existing shareholders from the company’s reserves.
Preferential Allotment
Shares allotted to a select group of investors on preferential terms.
Board Approval:
The Board of Directors must approve the proposal to issue shares.
Shareholder Approval:
Depending on the mode and type of issue, shareholders’ approval by ordinary or special resolution may be required.
Pricing:
The issue price of shares must comply with applicable regulations, such as valuation norms or pricing guidelines issued by SEBI for listed companies.
Filing with Registrar of Companies (RoC):
Relevant forms such as PAS-3 (Return of allotment), PAS-4 (Private placement offer letter), PAS-5 (Private placement report), and SH-7 (Increase in share capital) need to be filed with the RoC within prescribed timelines.
Allotment of Shares:
Shares must be allotted only after receipt of the application money, and share certificates must be issued within two months of allotment.
Share Capital Limits:
The total authorized share capital of the company must be sufficient to cover the shares issued.
Pre-emptive Rights:
Existing shareholders generally have the right of first refusal in case of a new issue of shares, except in case of private placement or rights issue.
Payment for Shares:
Shares can be issued fully paid-up or partly paid-up. Calls on partly paid shares may be made subsequently.
Penalties for Non-Compliance
Non-compliance with the provisions related to the issue of shares may attract penalties under the Companies Act, including fines on the company and officers responsible.
Note: The process and compliances may vary depending on whether the company is listed or unlisted, private or public.