Ppt on Corporate law

1. CORPORATE LAW
Anchal Mittal
Asst. Professor
DISCLAIMER: No copyright violation is intended. The content is purely for educational purpose.
UNIT-II

2. Overview
• Chapter III of the Companies Act, 2013 deals
with “Prospectus and allotment of securities”,
• The chapter is divided into two parts, Part I
deals with Public Offer and Part II deals with
Private Placement.
• Section 23 of the Companies Act, 2013
provides that a company whether public or
private may issue securities.

3. PROSPECTUS
• In general it is an information booklet or offer document on the basis of
which an investor invests in the securities of an issuer company.
• According to section 2(70) prospectus means any document described
or issued as a prospectus and includes a red herring prospectus referred
to in section 32 or shelf prospectus referred to in section 31 or any notice,
circular, advertisement or other document inviting offers from the public
for the subscription or purchase of any securities of body corporate.
Prospectus
Red Herring
Prospectus
Shelf Prospectus
Any document
describe or issued as a
Prospectus
Any notice, circular,
advertisement or other
docs inviting offer

4. Case Study
Nash v. Lynde (1929) A.C. 158
Nash applied for certain shares in a company on the basis of a document sent to him
by Lynde, the managing director of the company. The document was marked “strictly
private and confidential.”
The document did not contain all the material facts required by the Act to be
disclosed. Nash filed a suit for compensation for loss suffered by him by reason of the
omissions.
The suit was dismissed.
The court observed, “The public is of course a general word. No particular numbers
are prescribed. Anything from two to infinity may serve. The point is that the offer as
such is to be open to anyone who brings his money and applies in due form, whether
the prospectus was addressed to him on behalf of the company or not. A private
communications is not thus open and does not construe to be a prospectus”.
The House of Lords held that there had been no issue to the public.

5. Case Study
The New Brunswick and Canada Railway and Land Co. v. Muggeridge
(1860) 1 Drewry and Smale 363
Golden Rule: It is the duty of those who issue the prospectus to be
truthful in all respects. This golden rule was enunciated by Kinderseley,
V.C. And has come to be known as the “golden legacy’’.
The court held that, “Only true nature of the company’s venture shall be
disclosed and Strict and scrupulous accuracy shall be maintained in
drafting prospectus as it invites the public to take shares on the faith of
the representations contained in the prospectus.

6. Case Study
The New Brunswick and Canada Railway and Land Co. v. Muggeridge
(1860) 1 Drewry and Smale 363
Golden Rule: It is the duty of those who issue the prospectus to be
truthful in all respects. This golden rule was enunciated by Kinderseley,
V.C. And has come to be known as the “golden legacy’’.
The court held that, “Only true nature of the company’s venture shall be
disclosed and Strict and scrupulous accuracy shall be maintained in
drafting prospectus as it invites the public to take shares on the faith of
the representations contained in the prospectus.

7. Case Study
Pramatha Nath Sanyal v. Kali Kumar Dutt, AIR 1925 Cal 714
Facts of the Case: An advertisement was inserted in a newspaper stating
‘some shares are still available for sale according to the terms of the
prospectus of the company which can be obtained on application.’
Decision: It was held that the advertisement amounted to prospectus as
it invited the public to purchase shares. The directors were therefore,
penalized, for not complying with the requirements of filing a copy
thereof with the Registrar of Companies.

8. Contents of
Prospectus
Information Reports
Declaration
Other
Matters
Section 26 of the
Companies Act, 2013

9. Cont.
• Prospectus to be dated & signed.
• Mention & set out reports on financial information (as prescribed by SEB in
consultation with Central Govt.). Until SEB specifies the regulations made by
the Securities and Exchange Board under the Securities and Exchange Board of
India Act, 1992, in respect of such financial information or reports on financial
information to apply.
Information to be
given in Prospectus
• Declaration about the compliance of the provisions of the Act &
• A statement regarding that nothing in the prospectus is contrary to the
provisions of the Act, the Securities Contracts (Regulation) Act, 1956
and the Securities & Exchange Board of India Act, 1992 & rules.
Declaration
• Prospectus to state other matters & reports as may be prescribed.
Other Matter
• Prospectus may contain a statement purporting to be made by an
expert.
Statement of Expert

10. Penalty if a
prospectus is issued in
contravention of the
provisions
• Company shall be punishable with fine of
minimum 50,000 rupees extended upto 3 lakh
rupees.
• Every person knowingly a party to the issue of
such prospectus shall be punishable with
imprisonment upto 3 years or fine of
minimum 50,000 rupees extended upto 3 lakh
rupees, or both.

11. Exemptions
• The requirement regarding contents of a prospectus provided under
section 26, does not apply to:

12. Variation in terms of object of prospectus
• Section 27 of Companies Act, 2013
• Variation to the terms of a contract or object referred in the
prospectus issues shall not be allowed to do so except by passing a
special resolution.
• Notice of the special resolution must clearly show the justification of
variation and it should be published in newspaper ( English &
Vernacular language) in city where company is registered.

13. Offer of sale of shares by certain members of
Company
• Section 28 of the Companies Act, 2013
• The provision regarding offer of sale of shares by certain members of company has been included for
the first time by Companies Act, 2013.
(1) Where certain members of a company propose, in consultation with the Board of Directors to offer,
in accordance with the provisions of any law for the time being in force, whole or part of their holding of
shares to the public, they may do so in accordance with such procedure as may be prescribed.
(2) Any document by which the offer of sale to the public is made shall, for all purposes, be deemed to
be a prospectus issued by the company and all laws and rules made thereunder as to the contents of
the prospectus and as to liability in respect of mis-statements in and omission from prospectus or
otherwise relating to prospectus shall apply as if this is a prospectus issued by the company.
(3) The members, whether individuals or bodies corporate or both, whose shares are proposed to be
offered to the public, shall collectively authorise the company, whose shares are offered for sale to the
public, to take all actions in respect of offer of sale for and on their behalf and they shall reimburse the
company all expenses incurred by it on this matter.

14. Types of Prospectus
Prospectus
Red Herring
Prospectus
Shelf
Prospectus
Deemed
Prospectus
Shelf
Prospectus

15. Shelf Prospectus
• Section 31 pertain to Shelf Prospectus
• A Shelf prospectus is a formal legal document provides details about
an investment offering for sale to qualified institutional investors or
to the public at large, known as retail investors.
• The difference between a full-fledged prospectus and a shelf
prospectus is that in a shelf, issuers can sell securities publicly
without having to write or file a prospectus for each issuance.
• Therefore, one shelf prospectus would be used for numerous
issuance offerings, which would be used or future issuance offerings.
• The validity period of a Shelf Prospectus cannot exceed one year
from date of opening of the first offering of securities under that
prospectus.
*Read Section 31

16. Shelf Prospectus
• It may be issued any class or classes of companies, as the Securities
and Exchange Board may provide by regulations in this behalf.
• Has validity period and it must be indicated in the shelf prospectus.
• For subsequent offer of securities during validity period no further
prospectus shall be required.
• Company filing a shelf prospectus is required to file an information
memorandum containing all material facts relating to new charges
created, changes in the financial position of the company as have
occurred between the first offer of securities or the previous offer of
securities and the succeeding offer of securities and such other
changes as may be prescribed, with the Registrar within the
prescribed time, prior to the issue of a second or subsequent offer of
securities under the shelf prospectus

17. Cont.
• If a company or other person has received applications for the
allotment of securities along with advance payment of subscription
before making of the change, the company or other person shall
intimate the changes to the such applicant. If the applicant wants to
withdraw their application the subscription money be returned within
15 days.
• The information memorandum is filed, every time an offer of
securities is made under sub-section (2) of Section 31, such
memorandum together with the shelf prospectus shall be deemed to
be a prospectus.

18. Red Herring Prospectus
• Section 32 (1) of the Companies Act 2013 a red herring prospectus is
issued prior to the prospectus when a company is proposing to make
an offer of securities.
• Red herring prospectus means a prospectus which does not include
complete particulars of the quantum or price of securities.
[Explanation to Section 32]
• Such company proposing to issue a red herring prospectus shall file
red herring prospectus with the Registrar at least three days prior to
the opening of the subscription list and the offer.
• It carries same obligation as are applicable in the case of a
prospectus.
*Read Section 32

19. Cont.
• Any variation between the red herring
prospectus and a prospectus shall be
highlighted as variations in the prospectus.
• Upon the closing of the offer of securities,
the prospectus stating therein:
• total capital raised, whether by way of
debt or share capital,
• the closing price of the securities, &
• any other details as are not included in
the red herring prospectus
(This shall be filed with the Registrar and the
Securities and Exchange Board)

20. Abridged Prospectus
• According to section 2(1) of the Act “abridged prospectus” means a
memorandum containing such salient features of a prospectus as may
be specified by the Securities and Exchange Board by making
regulations in this behalf.
• The term ‘abridge’ is to shorten something without destroying the
original meaning, as per the dictionary meaning.
• An abridged prospectus is a summary of the prospectus containing
such details as be prescribed by the SEBI.

21. Significance of Abridge Prospectus
• A prospectus is a very voluminous document, and one cannot be expected to read it
completely and invest in this fast pacing world.
• One needs quick, relevant and crisp information about the company. To serve this
purpose, an abridged prospectus is made. It is short in length (5 sheets) that would be
printed on both sides, a maximum of 10 pages and contains all information in bullets.
• According to Section 33 of The Companies Act 2013, lays down no form of application
for the purchase of any of the securities of a company shall be issued unless such form
is accompanied by an abridged prospectus. This implies that a company is barred from
accepting offers from the public and the public is barred from investing into the
company unless it has received an abridged prospectus.
• It has been made mandatory to enable the investors know about the nature and rights
and repercussions which shall arise from investment and thus, protects the investor.

22. ESSENTIALS OF ABRIDGED PROSPECTUS
• The abridged prospectus shall be in Times New Roman size 11 (min) with 1.0 line spacing in A4
size paper.
• The information which is of generic nature shall be in the form of General Information Document.
A copy of abridged prospectus shall be submitted to SEBI.
• An issuer making a public issue of securities shall disclose whether the issue is 100% Book Building
Issue or Fixed Price Issue and total no. of pages,
• Name and logo of the issuer, corporate identity number, details of the registered office and
registrar of the issuer along with communication details.
• The dates of opening and closing of the issue with information regarding price, minimum bid,
name of recognized stock exchange where the specified securities are listed.
• Information about the promoters and board of directors of the company, details about ten largest
shareholders.
• Objects of the issue, cost and means of financing of the project.
(It shall contain information & disclosures as specified in Part E, F of the Schedule VI)

23. DEEMED PROSPECTUS
• In cases where the invitation is made by or on behalf of the company
for subscription to its shares or debentures, in general the provisions
of Companies Act relating to prospectus are restricted.
• At one point it was possible to avoid statutory provisions relating to
prospectus by allotting shares or debentures to the public through
Issue House.
• The shares or debentures will be allotted of these Issue Houses which
will in turn invite subscription from the public through their own offer
documents.
• Therefore, the company could indirectly raise subscriptions from the
members of the public without issuing an offer document or
prospectus.

24. Cont.
• Section 25 covers documents issued by the Issue Houses.
• This section 25 that makes offer of sale of shares or debentures through the medium of
Issue House, has been essential designed to check the by-pass of the provisions of Section
26.
• Under section 25 of the Act where a company allots or agrees to allot any securities of the
company with a view to all or any of those securities being offered for sale to the public,
any document by which the offer for sale to the public is made shall, for all purposes, be
deemed to be a prospectus issued by the company.
• Following additional information to the matters required to be stated in a prospectus:
(a) the net amount of the consideration received or to be received by the company in respect of the
securities to which the offer relates; and
(b) the time and place at which the contract where under the said securities have been or are to be allotted
may be inspected
• According to the section in order to construe “Offer for Sale” either of the following
conditions needs to be fulfilled:
(a) “Offer for sale” to the public was made within six months after the allotment or agreement to allot, or
(b) at the date when the offer was made, the whole consideration to be received by the company in respect
of the securities had not been received by it.

25. Civil liability for mis-statements in prospectus
(a) is a director of the company at the time of the issue of the prospectus;
(b) has authorised himself to be named and is named in the prospectus as a
director of the company, or has agreed to become such director, either
immediately or after an interval of time;
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
(e) is an expert referred to in sub-section (5) of section 26,
• shall, without prejudice to any punishment to which any person may be
liable under section 36, be liable to pay compensation to every person who
has sustained such loss or damage

26. No person shall be liable under sub-section (1), if he proves—
• (a) that, having consented to become a director of the company, he
withdrew his consent before the issue of the prospectus, and that it
was issued without his authority or consent; or
• (b) that the prospectus was issued without his knowledge or consent,
and that on becoming aware of its issue, he forthwith gave a
reasonable public notice that it was issued without his knowledge or
consent.

27. Criminal liability for mis-statements in
prospectus
• According to 34 where a prospectus, issued, circulated or distributed
under this Chapter, includes any statement which is untrue or
misleading in form or context in which it is included or where any
inclusion or omission of any matter is likely to mislead, every person
who authorises the issue of such prospectus shall be liable under
section 447:
• Provided that nothing in this section shall apply to a person if he
proves that such statement or omission was immaterial or that he
had reasonable grounds to believe, and did up to the time of issue of
the prospectus believe, that the statement was true or the inclusion
or omission was necessary.

28. Share Capital & Debentures
● Shares and debentures are financial instruments for raising funds for the company. Under the Companies
Act, 2013, these are jointly referred to as “Securities”. According to S. 2 (h) Securities Contracts
(Regulation) Act, 1956 securities include shares, scrips, stocks, bonds, debentures, debenture stock or
other marketable securities of a like nature in or of any incorporated company or other body corporate.
● Generally, shares depict ownership interest in a company with entrepreneurial risks and rewards whereas
debentures depict lender’s interest in the company with limited risks and returns.
● Legal provisions related to these instruments are covered in Chapter IV of the Companies Act, 2013
(comprising sections 43 to 72) and the Companies (Share Capital & Debentures) Rules, 2014 as
amended from time to time.
● According to Section 2 (7) “goods” means every kind of moveable property other than actionable claims
and money and includes stock and shares,
● According to Section 2 (84) of the Companies Act, 2013 share means a share in the share capital of a
company and includes stock.

29. Share vs Stocks
● Share has a nominal value whereas stock has no nominal value.
● A stock bears no such number but a share has a distinctive numbers a which distinguishes it from other
shares.
● Originally Shares can only be issued whereas a company cannot make an original issue of stock. Stock
can be issued by an existing company by converting its fully paid-up shares.
● A stock can never be partly paid-up, it is always fully paid-up.
● A stock may be transferred in any fractions however, a share may either be fully paid-up or partly paid
up.
● A share cannot be transferred in fractions. It is transferred as a whole.
● All the shares of a class are of equal denomination however, stock may be of different denominations.
Stock is expressed in terms of money and not shares. It is the aggregate of fully paid-up shares of a
member merged into one fund. Share represents a unit into which the capital of a company is divided.

30. Categories of Share Capital

31. SHARE CAPITAL-TYPES [SECTION 43]
Section 43 of
CA, 2013

32. PREFERENCE SHARES
● One of the types of shares which a company can issue is Preference Shares. However, they are not
used as commonly as equity shares. This is unlike in the USA, where preference shares or preferred
stock is an extremely popular means of capital structuring.
Preference shares may be of several types, which would depend upon their terms of issue:
Cumulative or Non-cumulative: In case of Cumulative preference shares, the shares carry a right to
receive arrears of dividends declared but not paid during the preceding years. Non-cumulative shares do not
have this right.
Participating or Non-participating: In case of Participating preference shares, the shares carry a right to
share in the dividend which is declared to equity shareholders after paying off the fixed dividend to
preference shares. They would also participate in the surplus on winding-up. Non-participating shares do not
have this right.
Convertible or Non-convertible: Convertible preference shares are those preference shares which are
compulsorily convertible into equity shares either at a given point of time or on the happening of certain
events. Once the shares are converted, there is no obligation on the part of the company to redeem them
since they are no longer preference shares. Non-convertible shares cannot be so converted and hence, have
to be redeemed.

33. Cont.
● A company limited by shares if so authorised by its Articles, may issue preference shares which at the
option of the company, are liable to be redeemed within a period, normally not exceeding 20
years from the date of their issue. [SECTION 55] For infrastructure projects, may issue preference
shares for a period exceeding twenty years but not exceeding thirty years. (Subject to the redemption of
a min 10% of such preference shares per year from 21st year onwards or earlier.
● It should be noted that:
(a) no shares can be redeemed except out of profit of the company which would otherwise be available
for dividend or out of proceeds of fresh issue of shares made for the purpose of redemption,
(b) no such shares can be redeemed unless they are fully paid,
(c) where any such shares are proposed to be redeemed out of the profits of the company, there shall, out of
profits which would otherwise have been available for dividends, be transferred to a reserve account to be
called Capital Redemption Reserve Account,(CRR account)
(d) The Capital Redemption Reserve Account may be applied by the company, in paying up unissued shares
of the company to be issued to members of the company as fully paid bonus shares.
(e) The premium, if any, payable on redemption shall be provided for out of the profits of the company before
the shares are redeemed.
(f) The issue of further redeemable preference shares or the redemption of preference shares shall not be
deemed to be an increase or as the case may be, a reduction in the share capital of the company.
(Notice of redemption of preference shares must be sent to the Registrar u/s 64 of the Act.)

34. Cont.
● The shares or debentures or other interest of any member in a company shall be movable property
transferable in the manner provided by the articles of the company. [Section 44]
● Every share in a company having a share capital shall be distinguished by its distinctive number.
Provided that nothing in this section shall apply to a share held by a person whose name is entered as
holder of beneficial interest in such share in the records of a depository.
● Certificate of shares- As per subsection (1) of section 46 a certificate, issued under the common seal, if
any, of the company or signed by two directors or by a director and the Company Secretary, wherever
the company has appointed a Company Secretary, specifying the shares held by any person, shall be
prima facie evidence of the title of the person to such shares. [Subs. by Act 21 of 2015, for ―issued under
the common seal of the company]
● Duplicate certificate of shares may be issued.

35. Preference shares v/s equity shares
● Preference shares are entitled to a fixed rate/amount of dividend. The rate of dividend on equity shares depends
upon the amount of net profit available after payment of dividend to preference shareholders and the fund
requirements of the company for future expansion, etc.
● Dividend on the preference shares is paid in preference to the equity shares.
● The preference shares have preference in relation to equity shares with regard to the repayment of capital on
winding-up.
● If the preference shares are cumulative, the dividend not paid in any year is accumulated and until such arrears of
dividend are paid, equity shareholders are not paid any dividend.
● Redeemable preference shares are redeemed by the company on expiry of the stipulated period, but equity shares
cannot be redeemed.
● The voting rights of preference shareholders are restricted. An equity shareholder can vote on all matters affecting
the company but a preference shareholder can vote only when his special rights as a preference shareholder are
being varied or on any resolution for the winding up of the company or for the repayment or reduction of its equity or
preference share capital or where preference shares dividend is in arrears for at least two years.
● A company may issue rights shares to the company's existing equity share-holders whereas it is not so allowed in
case of preference shares (Section 62).
● Non-voting shares' as the term suggests are shares which carry no voting rights.[Section 43 allows issue of equity
shares without voting rights.]

36. Raising of capital/Issue of shares
● Companies limited by shares have to issue shares to raise the necessary capital for their operations.
Issue of shares may be made in three ways, they are:

37. Reduction of Share Capital under Companies Act, 2013
● According to Section 66 which is the governing provision for Reduction of Share Capital of a
company.
● Reduction of share capital is regarded as one of the process of decreasing company’s share
capital (apart from Redemption of preference shares and Buy Back of shares which are
governed by other provisions separately). The Reduction of Share Capital means reduction of
issued, subscribed and paid up share capital of the company.
● The need of reducing share capital may arise in various situations, such as:
○ Returning of surplus to shareholders,
○ Eliminating losses, which may be preventing the payment of dividends,
○ May be as part of scheme of compromise or arrangements,
○ To simply capital structure.
● According to Section 61 of the Companies Act, 2013 alteration of share capital involves
reduction in authorised share capital by cancellation of shares.

38. Reduction of Share Capital under Companies Act, 2013
● According to Section 66 which is the governing provision for Reduction of Share Capital of a
company.
● Reduction of share capital is regarded as one of the process of decreasing company’s share
capital (apart from Redemption of preference shares and Buy Back of shares which are
governed by other provisions separately). The Reduction of Share Capital means reduction of
issued, subscribed and paid up share capital of the company.
● The need of reducing share capital may arise in various situations, such as:
○ Returning of surplus to shareholders,
○ Eliminating losses, which may be preventing the payment of dividends,
○ May be as part of scheme of compromise or arrangements,
○ To simply capital structure.
● According to Section 61 of the Companies Act, 2013 alteration of share capital involves
reduction in authorised share capital by cancellation of shares.

39. Reduction of Share Capital under Companies Act, 2013
● According to Section 66 which is the governing provision for Reduction of Share Capital of a
company.
● Reduction of share capital is regarded as one of the process of decreasing company’s share
capital (apart from Redemption of preference shares and Buy Back of shares which are
governed by other provisions separately). The Reduction of Share Capital means reduction of
issued, subscribed and paid up share capital of the company.
● The need of reducing share capital may arise in various situations, such as:
○ Returning of surplus to shareholders,
○ Eliminating losses, which may be preventing the payment of dividends,
○ May be as part of scheme of compromise or arrangements,
○ To simply capital structure.
● According to Section 61 of the Companies Act, 2013 alteration of share capital involves
reduction in authorised share capital by cancellation of shares.

40. Employee Benefit Schemes
Stock
appreciation
rights schemes
Employee
stock purchase
schemes
Employee
stock option
schemes

41. Prohibition on issue of shares at discount
● According to Sub-section(1) of Section 53 states except as provided in section 54, a company shall not
issue shares at a discount.
● Any share issued by a company at a discount shall be void. [S. 53 (2) ]
● Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a
discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution
plan or debt restructuring scheme in accordance with any guidelines or directions or regulations
specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934) or the
Banking (Regulation) Act, 1949 (10 of 1949).] [S. 53 (2A) ]
● Where any company fails to comply with the provisions of this section, such company and every officer
who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised
through the issue of shares at a discount of five lakh rupees, whichever is less, and the company shall
also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from
the date of issue of such shares to the persons to whom such shares have been issued. [S. 53 (3) ]

42. Issues of sweat equity shares
● According to Sub-section(1) of Section 54 states notwithstanding anything contained in section 53, a
company may issue sweat equity shares of a class of shares already issued, if the following conditions
are fulfilled, namely:--
(a) the issue is authorised by a special resolution passed by the company;
(b) the resolution specifies the number of shares, the current market price, consideration, if any, and the
class or classes of directors or employees to whom such equity shares are to be issued;
(d) where the equity shares of the company are listed on a recognised stock exchange, the sweat equity
shares are issued in accordance with the regulations made by the Securities and Exchange Board in this
behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may
be prescribed.
● According to Sub-section(2) of Section 54 states the rights, limitations, restrictions and provisions as are
for the time being applicable to equity shares shall be applicable to the sweat equity shares issued under
this section and the holders of such shares shall rank pari passu with other equity shareholders.

43. Issues of sweat equity shares
● According to Sub-section(1) of Section 54 states notwithstanding anything contained in section 53, a
company may issue sweat equity shares of a class of shares already issued, if the following conditions
are fulfilled, namely:--
(a) the issue is authorised by a special resolution passed by the company;
(b) the resolution specifies the number of shares, the current market price, consideration, if any, and the
class or classes of directors or employees to whom such equity shares are to be issued;
(d) where the equity shares of the company are listed on a recognised stock exchange, the sweat equity
shares are issued in accordance with the regulations made by the Securities and Exchange Board in this
behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may
be prescribed.
● According to Sub-section(2) of Section 54 states the rights, limitations, restrictions and provisions as are
for the time being applicable to equity shares shall be applicable to the sweat equity shares issued under
this section and the holders of such shares shall rank pari passu with other equity shareholders.

44. Certificate of shares
● According to section 46 A certificate, issued under the common seal, if any, of the company
or signed by two directors or by a director and the Company Secretary, wherever the
company has appointed a Company Secretary, specifying the shares held by any person,
shall be prima facie evidence of the title of the person to such shares.
● A duplicate certificate of shares may be issued, if such certificate —
(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the company.

45. Certificate of shares
● According to section 46 A certificate, issued under the common seal, if any, of the company
or signed by two directors or by a director and the Company Secretary, wherever the
company has appointed a Company Secretary, specifying the shares held by any person,
shall be prima facie evidence of the title of the person to such shares.
● A duplicate certificate of shares may be issued, if such certificate —
(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the company.

46. Allotment of Shares
● Offer for shares are made on application forms supplied by the company.
● When an application is accepted, it amounts to an allotment.
● The expression allotment is not defined under the Act.
● It means and implies a division of the share capital into defined shares of a particular value or of different
classes and assignment of such shares to different persons.
● No valid allotment can be made on an oral request. According to S. 2(55) it provides that for becoming a
member, a person should agree in writing.
● Statutory provisions regarding allotment
○ Registration of prospectus [S. 26 (4)]
○ Application money [S. 39 (2)]
○ Minimum Subscription [S. 39 (1) and (3)]

47. Forfeiture of Shares
● If a shareholder fails to pay the allotment money or call money or any part thereof due on the shares held by him, his
shares may be forfeited by a resolution of the Board of Directors, if the articles empower it to do so. Thus, forfeiture of
shares means confiscation of shares of a defaulting shareholder for non-payment of allotment money or call money.
When shares are forfeited the amount already paid is not refunded to him. His name is removed from the register of
members. He is also liable as a list B contributory if the company is wound up within a year of forfeiture. Before
shares can be forfeited, every technicality must be strictly observed.
Forfeiture is valid if the following conditions are satisfied:
● Provision in the Articles- The Board of Directors can forfeit the shares if the articles empower them to do so.
● Notice of forfeiture- A notice must be served on the defaulting shareholder requiring payment of call or instalment as
is unpaid, together with interest accrued by a certain date. Table F provides that if the payment is not made by the
prescribed date, the shares that a period of at least 14 days must be served. The notice must state will be forfeited.
● Resolution of the Board- If in spite of the notice does not pay the unpaid amount on his shareholder does not pay the
unpaid amount on his shares by the prescribed date his shares in respect of which notice has been given may be
forfeited by a resolution of the Board of Directors. Resolution for forfeiture of shares has to be passed after failure of
shareholder to comply with notice of forfeiture, and not in anticipation thereof.
● Bonafide- The power of forfeiture of shares must be exercised bonafide i.e. in good faith in the interest of the
company.
Table A of the Companies Act, 2013 empowers the Board of Directors to sell or otherwise dispose off the forfeited shares
on such terms as it thinks fit. Forfeited shares can be reissued at par, premium or at discount.

48. Forfeiture of Shares
● If a shareholder fails to pay the allotment money or call money or any part thereof due on the shares held by him, his
shares may be forfeited by a resolution of the Board of Directors, if the articles empower it to do so. Thus, forfeiture of
shares means confiscation of shares of a defaulting shareholder for non-payment of allotment money or call money.
When shares are forfeited the amount already paid is not refunded to him. His name is removed from the register of
members. He is also liable as a list B contributory if the company is wound up within a year of forfeiture. Before
shares can be forfeited, every technicality must be strictly observed.
Forfeiture is valid if the following conditions are satisfied:
● Provision in the Articles- The Board of Directors can forfeit the shares if the articles empower them to do so.
● Notice of forfeiture- A notice must be served on the defaulting shareholder requiring payment of call or instalment as
is unpaid, together with interest accrued by a certain date. Table F provides that if the payment is not made by the
prescribed date, the shares that a period of at least 14 days must be served. The notice must state will be forfeited.
● Resolution of the Board- If in spite of the notice does not pay the unpaid amount on his shareholder does not pay the
unpaid amount on his shares by the prescribed date his shares in respect of which notice has been given may be
forfeited by a resolution of the Board of Directors. Resolution for forfeiture of shares has to be passed after failure of
shareholder to comply with notice of forfeiture, and not in anticipation thereof.
● Bonafide- The power of forfeiture of shares must be exercised bonafide i.e. in good faith in the interest of the
company.
Table A of the Companies Act, 2013 empowers the Board of Directors to sell or otherwise dispose off the forfeited shares
on such terms as it thinks fit. Forfeited shares can be reissued at par, premium or at discount.

49. Transfer of Shares as per Companies Act, 2013
● Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member
(as represented in a share of the company) from a shareholder who wishes to not be a member in the
company any more to a person who wishes of becoming a member. Thus, shares in a company are
transferable like any other movable property in the absence of any expressed restrictions under the
articles of the company.
● As per Section 56 of the Companies Act, 2013 it provides that the transfer of shares of the company and
other securities will be registered by a company only when a proper instrument of transfer of shares
(share transfer form) is filed as prescribed in the Form.
● One of the important features of the securities of a company is their transferability. Companies Act, 2013
under Section 44 provides that the shares, debentures or other interest of the member of a company are
moveable property and hence are transferable in the manner as provided in the company’s articles of
association.

50. Debentures
● Debenture: The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow.
Debenture is a written instrument acknowledging a debt under the common seal of the company.
● According to section 2(30) of The Companies Act, 2013 ‘Debenture’ includes Debenture Inventory,
Bonds and any other securities of a company whether constituting a charge on the assets of the
company or not.

51. Shares vs Debentures
Ownership: A ‘share’ represents ownership of the company whereas a debenture is only
acknowledgement of Debt. A share is a part of the owned capital whereas a debenture is a part of
borrowed capital.
Return: The return on shares is known as dividend while the return on debentures is called interest.
The rate of return on shares may vary from year to year depending upon the profits of the company but
the rate of interest on debentures is prefixed. The payment of dividend is an appropriation of profits,
whereas the payment of interest is a charge on profits and is to be paid even if there is no profit.
Repayment: Normally, the amount of shares is not returned during the life of the company, whereas,
generally, the debentures are issued for a specified period and repayable on the expiry of that period.
Voting Rights: Shareholders enjoy voting rights whereas debentureholders do not normally enjoy any
voting right.
Security : Shares are not secured by any charge whereas the debentures are generally secured and
carry a fixed or floating charge over the assets of the company.
Convertibility: Shares cannot be converted into debentures whereas debentures can be converted
into shares if the terms of issue so provide, and in that case these are known as convertible
debentures.

52. THANK YOU