The document discusses various aspects of acquisition of shares and assets in India. It covers topics like types of shares in a company, methods of issuing shares such as IPO, rights issue etc. It also discusses regulations around stock brokers, trading by NRIs, transfer of shares including takeovers and open offers. For acquisition of assets, it states that the acquirer will not take liabilities of the target unless attached to the asset acquired, and that an Indian subsidiary may need to be established for offshore acquirers. Overall, the document provides an overview of the legal and regulatory framework governing acquisition of shares and assets in India.

1. ACQUISITION OF SHARES AND ASSETS

2. ABSTRACT
Acquisition of Shares
•Introduction
•Issue of Shares
•Initial Public Offering
•Stock- brokers and Sub- brokers
Securities and Exchange Board of India (Stock Brokers and
Sub-brokers) Regulations, 1992.
• NRI Trading
Foreign Exchange Management (Transfer or issue of
security by a person resident outside India) Regulations,
2000.
•Transfer of shares
Foreign Exchange Management Act, 1999.
Companies Act, 1956.
•Substantial acquisition of shares
Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeover) Regulations, 1997.
Acquisition of Assets
Foreign Exchange Management (Transfer or issue of
security by a person resident outside India) Regulations,
2000.

3. Shares
According to the section 2(46) of the Company’s Act 1956, share means a part in the
share capital of the company and it also includes stock except where a distinction
between stock and share capital is made expressed or implied.
Preferential shares- Sec 85 of the Act
•It carries a preferential right for the
payment of the dividends at a fixed rate.
•It also a carries a preferential right for the
repayment of the capital during the winding
up.
Equity shares- Sec 85 of the Act
When the shares are not preferential share
capital, the rest will amount to equity share
capital or ordinary share capital.
Cumulative
&
Non- cumulative
Participating
&
Non- participating
Redeemable
&
Irredeemable

4. ISSUE OF SHARES
Public issue
When an issue / offer of
securities is made to new
investors for becoming part of
shareholders‟ family of the
issuer it is called a public
issue.
Rights issue
The securities are
issued by the
issuer to the
existing
shareholders on a
record date.
Bonus issue
When an issuer makes an
issue of securities to its
existing shareholders as on a
record date, without any
consideration from them, it is
called a bonus issue.
Private
placement
It is issue of
securities not
exceeding to 49
persons
Initial Public Offering
(IPO)
Follow up Public
Offering (FPO)
• A public company issuing share capital of 50 lakhs or more must submit a draft offer document
with the SEBI, 12 months prior to the issue.
• The IPO is governed by SEBI disclosure and Investor Protection Guidelines,1992.

5. INITIAL PUBLIC OFFERING
•An IPO is given by a company who issues shares for the first time with the view of
increasing the funds of the company.
• Sec 68B of the Companies Act, 1956 deals with the initial offers of securities to be in
dematerialised form in certain cases.
Prospectus
When the company decides to
issue shares to the public it has to
issue prospectus. It contains the
details of the company.
Share application
In order to avail the shares, an
individual shall submit share
application along with the
application money in prescribed
format.
Allotment of Shares
Once the minimum subscription
amount is received, the directors
of the company send out letters
of allotment to the applicants.
Share Certificate
As per section 84 of the Act, a
member obtains a share certificate
with a common seal of the company.
This shall be prima facie evidence of
the title of the member to such
shares

6. STOCK- BROKER AND SUB- BROKER
 Regulations 7 and 15 of the Securities Exchange Board of India (Stock- brokers and Sub-
brokers) Regulations,1992 deals with the code of conduct of a stock and sub broker
respectively.
 The brokers shall maintain high standards of integrity; act with due fairness , skill, care and
diligence. A broker shall not indulge himself in any manipulative or fraudulent manner with a
view to distort a market equilibrium or personal gains.
 The brokers shall abide by the statutory provisions that are in existence.
 A broker shall execute all the orders given by his client regarding the buying and selling of
securities at the best available market price.
 A contract note shall be issued to the client by the broker once the transaction is over.
 A broker cannot commit any breach of trust relating to the disclosure of the personal
investments of their clients.

7.  A broker shall not act only with the object of obtaining brokerage or commission. He shall
not furnish any misleading advice in order to induce business from him.
 A broker shall not render service to a client who has not fulfilled the commitments of
securities previously.
 Brokers shall not render advice directly or indirectly in publicly accessible media.
 A broker should maintain proper conduct in dealing with other contracting parties during the
transaction.
 A broker shall extend his fullest co-operation to other brokers in order to protect his client‟s
interests.
 A broker shall complete the settlement of transactions with other brokers.
 No broker shall advertise his business publicly unless permitted by law.
 A broker shall not neglect or fail or refuse to submit the required returns and not make any
false or misleading statement on any returns required to be submitted to the Board and the
stock exchange.

8. EXECUTION OF ORDERS OF THE CLIENT
In order to acquire shares, the client shall possess the following accounts:-
i. Demat A/c
Demat a/c holds shares, the shares are held in electronic or dematerialised form in a
depository. Depositories in India includes- National Security Depository Limited (NSDL)
and Central Depository Services (India) Limited (CDSL), registered with the SEBI.
Depository Participant is an authorized agent to operate demat a/c.
Functions:-
1. Physical share certificates are replaced by electronic book entities.
2. Purchase of shares are deemed as credits while sales are reflected as debits.
ii. Trading A/c
A Trading account is required if an individual wishes to trade, i.e. buy and sell shares in the
stock exchange. The actual trading can be done by phone, internet or using transaction slips
that are provided at the time of opening the account. Brokerage charges are applicable and
this varies according to the trading agents. The 2 main stock exchanges in India are the
National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). A Trading
account can also be opened with most banks and financial institutions.

9. iii. Bank A/c
Bank account is required for carrying out various financial transactions associated with
trading of shares. This is where the money on sale of shares will be credited or money for
buying shares will be debited from. A normal Savings Account is enough and nothing
additional needs to be done with the Bank account.
Bank A/c Trading A/c Demat A/c
Demat A/c Trading A/c Bank A/c
Buying of shares
Selling of shares
Money transaction Dematerialised form
Dematerialised form Money transaction
Debit money Credit shares
Debit shares Credit money

10. NRI TRADING ACCOUNT
 Non-Resident Indian (NRI) means a “person resident outside India” who is a citizen of India or is a
person of Indian origin"[as per FEMA regulations]
 NRI can invest in the shares of an Indian company through a stock exchange as per RBI guidelines.
 According to Regulation 5 of Foreign Exchange Management (Transfer or issue of security by a
person resident outside India) Regulations, 2000, NRI shall approach the designated branch of any
authorized dealer (bank) authorized by reserve bank to administer the PIS (Portfolio Investment
Scheme) to open a NRE (Non Resident External) /NRO (Non Resident Ordinary) account under the
scheme for routing Investments.
 Portfolio Investment Scheme (PIS) is a scheme of reserve bank of India under which - Non
Resident Indian (NRIs) can purchase/sell shares/convertible debentures of Indian companies on
Stock Exchanges.

11. TRANSFER OF SHARES
 Sec. 111A(2) of the Companies Act,1956 provides that the shares and debentures of a
listed company is freely transferable.
 Sect. 108 of the Act, deals with registration of transfer of shares only if a proper transfer
deed in Form 7B duly stamped and executed by or on behalf of the transferor and by or
on behalf of the transferee and specifying the name, address and occupation, if any, of the
transferee, has been delivered to the company, along with the share certificate.
 Sec 6(3) of the Foreign Exchange Management Act, 1999 authorises RBI to regulate the
transfer.
NRI No Resident (inc. NRI)
NRI NRI
Sale/gift
Sale/gift
transfer
transfer

12.  An NRI can sell his shares on stock exchange through a recognized broker.
 The sale transaction between the resident and NRI can be made by a private arrangement
provided there exists a prior approval of the RBI.
NRI Resident
Sale transaction
Private arrangement
NRI
transfer
gift
Resident
Procedure for share transfer in a private company
• As per sec. 3(1)(iii)(a) of the Companies Act, 1956, AOA shall restrict and govern the transfer of
shares in a private company.
• The transferor gives a notice in writing to the company regarding his intention to transfer his share.
• The directors of the company determine the price of the shares and they notify to the other members
as regards to the availability of such shares.
• If none of the members are willing to purchase the sharers, then it can be transferred to an outsider
and the company is bound to accept such a transfer.

13. SUBSTANTIALACQUISITION OF
SHARES AND TAKEOVER
 The Securities Exchange Board of India (Substantial acquisition of shares and Takeover) Regulations,
1997 deals with the entire concepts of substantial acquisition of shares and takeover of a target
company by acquirers who may be Persons Acting in Concert(PAC)/individuals/legal entities. A „target
company‟ is the listed company of whose shares are to be acquired,
 When an „acquirer‟ takes control of the „target company‟ then it is termed as „takeover‟. „Substantial
acquisition of shares‟ takes place when the „acquirer‟ acquires substantial quantity of shares or voting
rights of the target company.
 Any broker acting on behalf of his client is exempted from substantially acquiring shares and taking
over.
 The substantial acquisition of shares and voting rights can be classified distinctly into two purposes:-
 Threshold of disclosure to be made by acquirer.
 Trigger point for making an open offer by an acquirer.

14. Threshold of disclosure to be made by an acquirer:-
 5% to 15% shares or voting rights
any person who acquires shares would entitle him to exercise 5 to 14% shares or voting rights in the
target company, shall disclose the aggregate of their shareholding.
 15% to 75% shares or voting rights
any person who holds shares or voting rights in the target company between 15 to 75% and who trades
shares for 2% or more shall disclose the aggregate of their shareholdings. Any person holding more
than 15% shares or voting rights of the target company shall disclose their aggregate shareholdings
within 21 days of the end of the financial year.
Trigger point for making an open offer by an acquirer
 15% of shares or voting rights
any person who intends to acquire shares along with his existing share would be entitled to exercise
15% or more voting rights, can acquire that only by making a Public Announcement to acquire 20% of
the voting capital before the open offer.
 15%-75% shares or voting rights -Creeping Acquisition Limit
any acquirer who has 15%-75% shares or voting rights shall be entitled to 5% or more voting rights in
an financial year after making PA to at least acquire 20% of shares through an open offer.
 75% of shares or voting rights - Consolidation of holding
any acquirer who is having 75% shares or voting rights of a target company, can acquire further shares
or voting rights only through an open offer from the shareholders of the target company.

15. PROCEDURE
Public
announcement
(PA)
Open Offer SEBI‟s Role SAST
• The acquirer is bound to a make a public announcement establishing intention to acquire the
shares of the target company
• PA constitutes the offer price, no. of shares to be acquired from the public, identity and
future plans of the acquirer, purpose of acquisition, etc. The objective of the PA is to make
awareness among the shareholders about the intention of the acquirer and create an exit
opportunity as a consequence of the open offer.
• The open offer contains the disclosures of the acquirer and the future plans of the target
company. The shareholders‟ tendered offer price would also be taken into account for
determining the open offer, if any.
• SEBI does not have a say in the fixation of the open offer.
• Subsequently, the open offer is made and on the threshold of the public‟s investment, the
acquirer takes over the target company.

16. ACQUISITION OF ASSETS
 When an acquirer purchases an asset, the liabilities of the target shall not be attached to the acquirer
unless it is attached to the transferred property.
 A person outside India shall establish an Indian subsidiary in order to carry out asset purchase. Eg.
Joint venture with Indian companies. [RBI regulations]
 Assets include shares, debentures and other securities in a company dealt under the Companies
Act, 1956. The company must comply with the requirements of Sec. 293(1)(a) of the Act and obtain
the approval of the shareholders to sell all or substantial portion of its assets.
 The acquisition of asset from target company i.e. a unit in a SEZ or EOU (at times) require an
addition step of „debonding‟ of assets. The assets of a target company located within a SEZ unit are
bonded with the customs authorities for exemption of customs duty/tax. The acquirer company
under goes a de-bonding process i.e payment of customs tax in order to acquire the assets of a SEZ
unit.
 Therefore, asset acquisition varies with respect to the asset that is to be purchased. Each purchase
shall be governed by respective Acts based on the type of asset.

17. THANK YOU
By:
Catherine Monisha. F
Jeyapriya. R