ALL ABOUT SHARES & HOW TO ISSUE AND BUY BACK THEM?  by :  DR. T.K. JAIN AFTERSCHO ☺ OL  centre for social entrepreneurship...
Sec. 2(46) :  Share means share in the capital of a company
Types of shares :  Equity preference (preference in dividend, wind up etc. )  sweet equity (for employees)  share warrant ...
Types of capital  Authorised / nominal/ registered  (mentioned in MOA)  issued subscribed called up  paid up  reserve
Can a company issue irredeemable preference shares ?  No  only redeemable preference shares can be issued (sec. 80 of comp...
Rules regarding redemption of preference shares :  Redemption only out of profit / fresh issue  only fully paid shares can...
Shares with differential voting rights .... Here the shareholders get different voting rights / different dividend  articl...
BUY BACK OF SHARES  1999 amendment brought Sec. 77A,77AA,77B, which allowed buy back and deleted 77(1), 77(2) which didnt ...
WHY BUY BACK?  To increaase EPS  where there is surplus profit  When company has excess funds  / liquidity  to defend comp...
How to have buy back?  Out of free reserves or out of security premium account  or out of proceeds of fresh equity issues
How much can a company buy back?  10 % of paid up capital + reserves = if authorised by AOA + board resolution  by special...
Rules of buy back :  In 6 months company cant issue bonus / fresh issue / convert warrants into equity / sweat equity  fil...
Penalty  50000  or 2 years imprisonment for default
Prohibition of buy back (sec. 77B)  When a company has defaulted in payment of deposits / repayment of interest / deposit ...
Case: Sterlite  Buy back under sec 77A cannot be overriding to powers of the court under Sec. 100,101, 391 and therefore b...
SWEAT EQUITY SHARES  SEC. 79A  AS PER 1999 AMENDMENT  shares of existing class only  at least 1 year must have passed  Spe...
Issues regarding sweat equity  How to value / price sweat equity shares ?  VERMA COMMITTEE RECOMMENDATIONS  http://www.hin...
ISSUE OF SHARES AT PREMIUM / DISCOUNT  DISCOUNT : MAX. : 10% (MORE – BY CLB PERMISSION)  FIRST ISSUE CANT BE ON DISCOUNT  ...
HOW TO USE SHARE PREMIUM AS PER 78(2) :  FOR BUY BACK OF SHARES FOR ISSUE OF BONUS SHARES WRITING OFF PRELIMINARY EXP / CO...
BONUS ISSUES  It is for FULLY PAID UP shares http://dpe.nic.in/newgl/glch0312.htm authorised by AOA sanctioned by ordinary...
Share allotment  Allotment must be unconditional within reasonable time  sec : 73(1A),69,72,73 and 70 must be followed – i...
How to transfer share in private company ?  Generally answer is No – private company doesnt allow share transfer  (i) Tran...
Minimum subscription  90% - in 120 days from prospectus  otherwise return in 130 days  othersie interest 6%  as per SEBI g...
Calls  Make a call  - at least 5% on application, (minimum 25%)  board resolution must be passed  14 day notice for calls ...
Forfeiture  At least 14 day notice  AOA must authorise  Board resolution is necessary  a person is responsible for unpaid ...
Underwriting commission  2.5% on debentures  5% on shares  must be mentioned in prospectus  agreement with underwriter mus...
Sebi guidelines  http://www.sebi.gov.in/SectIndex.jsp?sub_sec_id=4
What is minimum subscription  It must be mentioned in prospectus – as per SEBI guidelines : 90% is minimum subscription
Issue norms  Issue norms must be given in prospectus. Issue must be made in 30 days of public issue closure  (otherwise pe...
Transfer of shares  Now it is through Demat (NSDL or CDSL) – so it is a request to these Demat companies to transfer the s...
Nomination  Every shareholder can nominate a person as per sec. 109A. Thus if a person dies, his nominee will get the shar...
Difference between transfer & transmission ?  Transfer is a voluntary act, you intentionally transfer your shares – but tr...
Transfer deed  (physical shares)  When you want to transfer shares, get a transfer deed, get it endorsed by registrar of c...
GOLDEN RULE  Kindersely : in Brunswick etc. v/s Muggeridge (1860) :  the person issueing prospectus must give every inform...
Important rules  Experts opinion only after obtaining written consent by experts  Director names only after obtaining writ...
When can registrar refuse to register a prospectus  It is not dated it is not signed it is not accompanied with documents ...
STATEMENT IN LIEU OF PROSPECTUS  1. when a private company becomes a public company  (within 30 days)  2. when public comp...
BE A PROMOTOR A Promotor is a person who sets up a company.  As a promotor, you have to think about the idea and convert t...
Steps ...... Prepare Memorandum of association (as per format) in at least 3 copes Prepare Articles of association (as per...
LEGAL FORMS  Form NO. 1 : declaration of all the formalities of company  (to be filed with registrar of comapnies ). for o...
THANKS.... GIVE YOUR SUGGESTIONS AND JOIN AFTERSCHOOOL NETWORK / START AFTERSCHOOOL SOCIAL ENTREPRENEURSHIP  NETWORK IN YO...
Upcoming SlideShare
Loading in …5
×

All about shares and how to issue and buy back them

3,532 views
3,495 views

Published on

Published in: Business, Economy & Finance
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
3,532
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
134
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide

All about shares and how to issue and buy back them

  1. 1. ALL ABOUT SHARES & HOW TO ISSUE AND BUY BACK THEM? by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE PARTICIPANTS mobile : 91+9414430763
  2. 2. Sec. 2(46) : Share means share in the capital of a company
  3. 3. Types of shares : Equity preference (preference in dividend, wind up etc. ) sweet equity (for employees) share warrant (right to buy shares in future) right shares (right of existing shareholders to buy share) bonus share (freely given to existing shareholders)
  4. 4. Types of capital Authorised / nominal/ registered (mentioned in MOA) issued subscribed called up paid up reserve
  5. 5. Can a company issue irredeemable preference shares ? No only redeemable preference shares can be issued (sec. 80 of company act) – these must be redeemed in max. 20 years
  6. 6. Rules regarding redemption of preference shares : Redemption only out of profit / fresh issue only fully paid shares can be redeemed it must create redemption reserve fund if premium is paid at redemption, it must be from profit / security premium account
  7. 7. Shares with differential voting rights .... Here the shareholders get different voting rights / different dividend articles must authorise it approval of shareholders is necessary max. 25% of total equity (as per 2000 amendment – which deleted sec. 88, which didnt allow such shares)
  8. 8. BUY BACK OF SHARES 1999 amendment brought Sec. 77A,77AA,77B, which allowed buy back and deleted 77(1), 77(2) which didnt allow buy back
  9. 9. WHY BUY BACK? To increaase EPS where there is surplus profit When company has excess funds / liquidity to defend company from possible takeover bids to provide exit route to shareholders to increase market value of shares `
  10. 10. How to have buy back? Out of free reserves or out of security premium account or out of proceeds of fresh equity issues
  11. 11. How much can a company buy back? 10 % of paid up capital + reserves = if authorised by AOA + board resolution by special resolution : Max. 25% of paid up capital + reserves buy back must be completed in 12 months all the shares must be fully paid up SEBI (buy back) regulations 1998 must be followed
  12. 12. Rules of buy back : In 6 months company cant issue bonus / fresh issue / convert warrants into equity / sweat equity fill up form 4a & 4b must be filled with ROC ratio of debt equity ratio 2:1 read : www.sebi.gov.in/faq/buybackfaq.htm www.legalserviceindia.com/articles/shares.htm
  13. 13. Penalty 50000 or 2 years imprisonment for default
  14. 14. Prohibition of buy back (sec. 77B) When a company has defaulted in payment of deposits / repayment of interest / deposit / dividend, it cant buy back its shares when it has defaulted in submitted annual accounts as per sec. 159, 211, 207 it cant buy back shares
  15. 15. Case: Sterlite Buy back under sec 77A cannot be overriding to powers of the court under Sec. 100,101, 391 and therefore buy back cant be unilateral. Read : http://www.financialexpress.com/news/hc-admits-dca-plea-on-sterlite-buyback/50344/
  16. 16. SWEAT EQUITY SHARES SEC. 79A AS PER 1999 AMENDMENT shares of existing class only at least 1 year must have passed Special resolution as per SEBI guidelines www.sebi.gov.in/acts/sweatregu2002.html
  17. 17. Issues regarding sweat equity How to value / price sweat equity shares ? VERMA COMMITTEE RECOMMENDATIONS http://www.hinduonnet.com/2002/10/04/stories/2002100403471800.htm www.financialexpress.com/printer/news/55236/ - Angola
  18. 18. ISSUE OF SHARES AT PREMIUM / DISCOUNT DISCOUNT : MAX. : 10% (MORE – BY CLB PERMISSION) FIRST ISSUE CANT BE ON DISCOUNT PREMIUM IS TRANSFERRED TO SECURITY PREMIUM A/C AND CANT BE TREATED AS PROFIT
  19. 19. HOW TO USE SHARE PREMIUM AS PER 78(2) : FOR BUY BACK OF SHARES FOR ISSUE OF BONUS SHARES WRITING OFF PRELIMINARY EXP / COMMISSION / DISCOUNT FOR PREMIUM ON REDEMPTION OF SHARES
  20. 20. BONUS ISSUES It is for FULLY PAID UP shares http://dpe.nic.in/newgl/glch0312.htm authorised by AOA sanctioned by ordinary resolution out of free reserves (not from revaluation of fixed assets) .
  21. 21. Share allotment Allotment must be unconditional within reasonable time sec : 73(1A),69,72,73 and 70 must be followed – issue of prospectus, minimum subscription, min. Application money etc. Must be followed apply to stock exchanges and take permission otherwise allotment will be void (if Stock exchange refuse, apply to SAT) .
  22. 22. How to transfer share in private company ? Generally answer is No – private company doesnt allow share transfer (i) Transferor should give a notice in writing for his intention to transfer his share to the company. (ii) The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them. (iii) Such price is generally determined by the directors or the auditors of the company.(iv) The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
  23. 23. Minimum subscription 90% - in 120 days from prospectus otherwise return in 130 days othersie interest 6% as per SEBI guidelines, these rates have changed – so read latest SEBI guidlines www.sebi.gov.in/commreport/rep245.html www.sebi.gov.in/acts/ipguidelines.pdf
  24. 24. Calls Make a call - at least 5% on application, (minimum 25%) board resolution must be passed 14 day notice for calls interval of 1 month between two calls sec. 92 : advance call may be taken up
  25. 25. Forfeiture At least 14 day notice AOA must authorise Board resolution is necessary a person is responsible for unpaid money even after forfeiture of his shares
  26. 26. Underwriting commission 2.5% on debentures 5% on shares must be mentioned in prospectus agreement with underwriter must be submitted to ROC
  27. 27. Sebi guidelines http://www.sebi.gov.in/SectIndex.jsp?sub_sec_id=4
  28. 28. What is minimum subscription It must be mentioned in prospectus – as per SEBI guidelines : 90% is minimum subscription
  29. 29. Issue norms Issue norms must be given in prospectus. Issue must be made in 30 days of public issue closure (otherwise penal interest @15%) refund orders (if any must be despatched in 78 days). Allotment must be made by board of directors / proper authority
  30. 30. Transfer of shares Now it is through Demat (NSDL or CDSL) – so it is a request to these Demat companies to transfer the shares –, but earlier you had to sign a transfer deed – sec 108, to 111A gave details of transfer of shares - which was applicable in the case of physical shares.
  31. 31. Nomination Every shareholder can nominate a person as per sec. 109A. Thus if a person dies, his nominee will get the shares. Nominee can be minor also.
  32. 32. Difference between transfer & transmission ? Transfer is a voluntary act, you intentionally transfer your shares – but transmission takes place by law – suppose X dies, his shares transmitted to his nominee. Cases when tranmission takes place : 1. death 2. insovency 3. lunancy 4. any other situation prescribed by law
  33. 33. Transfer deed (physical shares) When you want to transfer shares, get a transfer deed, get it endorsed by registrar of companies and then it should be signed by both tranferor and transferee. It must contain particulars of shares, address of transferee. Then it should be lodged to company, which will enter name of transferee in register of shareholders. If the company wants to refuse transfer it has to inform in 2 months with reasons (like signature mismatch etc.)
  34. 34. GOLDEN RULE Kindersely : in Brunswick etc. v/s Muggeridge (1860) : the person issueing prospectus must give every information stricktly and scrupulously and must not omit any material information
  35. 35. Important rules Experts opinion only after obtaining written consent by experts Director names only after obtaining written consent by director to become the director the experts mentioned must not be connected to formation of the company (indemnify if there is false information)
  36. 36. When can registrar refuse to register a prospectus It is not dated it is not signed it is not accompanied with documents it is not as per company law & SEBI guidelines
  37. 37. STATEMENT IN LIEU OF PROSPECTUS 1. when a private company becomes a public company (within 30 days) 2. when public company is not issueing shares to public, they have to issue this. 3. when a public company doesnt allot shares to public it must have contents similar to prospectus, penalty if untrue statement : 10000 http://www.vakilno1.com/bareacts/companiesact/s44.htm
  38. 38. BE A PROMOTOR A Promotor is a person who sets up a company. As a promotor, you have to think about the idea and convert this idea into a company. As a promotor, you have to set up initial contracts so that company becomes operational.
  39. 39. Steps ...... Prepare Memorandum of association (as per format) in at least 3 copes Prepare Articles of association (as per format) in at least 3 copes (or apply Table A of schedule I) Prepare agreements with directors Submit declaration to Registrar of company that all formalities have been fulfilled (by company secretary) prepare prospectus go ahead for raising money for your dream ideas
  40. 40. LEGAL FORMS Form NO. 1 : declaration of all the formalities of company (to be filed with registrar of comapnies ). for other forms and their structure, click on the following link : http://www.mca.gov.in/MCA21/dca/downloadeforms/Download_eForm_choose.html http://www.vakilno1.com/froms_html/co_form.htm
  41. 41. THANKS.... GIVE YOUR SUGGESTIONS AND JOIN AFTERSCHOOOL NETWORK / START AFTERSCHOOOL SOCIAL ENTREPRENEURSHIP NETWORK IN YOUR CITY [email_address] PGPSE – WORLD'S MOST COMPREHENSIVE PROGRAMME IN SOCIAL ENTREPRENEURSHIP

×