Procedure of Issuing Share Capital under Companies Act 2013 (For Private Limited)

  • 1

Procedure of Issuing Share Capital under Companies Act 2013 (For Private Limited)

Under the Companies Act 2013, A Private Company can raise funds in the following ways:

1. Private Placement
2. Right Issue

APPLICABILITY
From 1st April 2014

A. PRIVATE PLACEMENT

Private Placement is issuing share capital to a select group of people, including or not the existing shareholders, like friends, family members, Angel investors, Venture Capitalists etc.

As per Companies Act 2013, private companies have to follow the processes for private placement of securities. Securities means equity shares, preference shares and debentures, convertible instruments, redeemable instruments.
“Private Placement” means any offer of securities or invitation to subscribe securities (equity or securities that convert to equity) to a select group of persons by a company, other than by way of public offer, through issue of a private placement offer letter. (Section 42 of Companies Act 2013 and Rule 14 under Companies (Prospectus and Allotment of Securities) Rules 2014)

OFFER
An offer can be made under a Private Placement Offer Letter to not more than 200 people
Even an invitation to subscribe cannot be made to more than 200 people. The 200 people limit excludes Qualified Institutional Buyers and Employees.

OFFER LETTER

1. Offer letter in form PAS-4
2. Application form serially numbered
3. Addressed to specific person
4. In writing or electronic mode.
5. Special Resolution – basis or justification of pricing (including premium) to be made in explanatory statement.
6. Offer per person cannot be for less than Rs. 20,000
7. A person cannot apply for shares of Less than Rs 20,000 Face Value.
8. Payment to be made from bank A/c of person subscribing.
9. Company to keep record of such Bank A/C
10. Maintain complete record in PAS-5 and PAS-4 to be filed with ROC

OFFER LETTER SHOULD CONTAIN

1.  Business carried out by the company and its subsidiaries, if any.
2. Purpose and object of offer
3. Time schedule for which offer is valid.
4. Price of offer and its justification.
5. Name & Address of the valuer (for valuation of shares)
6. Contribution by promoters or directors.
7. Management’s perception of risk factors
8. Details of default including interest – statutory dues, deposit, loan, etc.
9. Disclosure of interest of director, promoter or KMP.
10. Details of litigation pending
11. Remuneration of directors for current + last 3 yrs.
12. Related party transaction for last 3 years relating to loans, guarantee or securities.
13. Auditors’ reservations or qualifications or adverse remarks for last 5 years – its impact on FS & corrective action taken / proposed for each comment.
14. Material frauds last 3 years

FINANCIAL DISCLOSURES

1. Capital structure before & after issuance of security
2. Profit before tax & after tax for 3 years
3. Dividend last 3 years
4. Interest coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid).
5. Summary of financial position including Cash Flows – last 3 years – audited
6. Change in accounting policies in last 3 years and its effect on profits & Reserves.
7. Declaration by director of compliance.

APPLICATION MONEY

1. Share application money cannot be received in cash
2. The application money so received shall be kept in a separate bank account and cannot be utilised until the allotment of shares.

COMPLIANCE REQUIREMENTS FOR ALLOTMENT

1. File form PAS -3 (return of allotment) in 30 days of allotment of shares.
2. Resolution and List of allottees to be attached with the form
3. Mention PAN & e-mail address, of each member to whom share allotted, in the list of allottees.
4. Share to be allotted within 60 days of receipt of allotment money.

PENALTY

1. Amount involved or 20 Crore (200 Million), whichever is higher
2. Refunding the share application money

B. RIGHTS’ ISSUE

REQUIREMENTS

For a pro-rata issuance of equity and securities converting into equity, to existing equity shareholders in the company, then the shareholders of the company has to approve through a special resolution.

OFFER LETTER

1. Notice of issue should be dispatched at least 3 days before opening of offer
2. Offer should remain open at least for 15 days and not more than 30 days.
3. Addressed to specific person
4. In writing or electronic mode.
5. Special Resolution – basis or justification of pricing (including premium) to be made in explanatory statement.
6. Purpose and object of offer
7. Time schedule for which offer is valid.
8. Price of offer and its justification
9. The securities allotted has to be fully paid-up (i.e. it cannot be partly-paid).

In case the existing shareholders do not accept the offer, the directors should dispose such shares in a manner “non-disadvantageous” to the company.

ALLOTMENT
On receipt of application money

1. File form PAS -3 (return of allotment) in 30 days of allotment of shares.
2. Resolution and List of allottees to be attached with the form
3. Mention PAN & e-mail address, of each member to whom share allotted, in the list of allottees.
4. Share to be allotted within 60 days of receipt of allotment money.
SHARE CERTIFICATE
In both the cases i.e. private placement or rights issue, share certificates should be issued within 60 days of the allotment.


Also Check

QuickFormats.com
Draft documents, formats, templates like Board resolutions, LLP resolutions, agreements, HR documents, banking letters, tax forms at one place. Editable word files. Easy to access, FREE to download.

Archives