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Mode of Issuance of Securities under Companies Act 2013

The Companies Act, 2013 has streamlined the process of issuance of securities and has laid out clear procedure and requirements to be complied with in case of each type of issue.
Written by:
Simran Bhullar
Published on
25-Jul-18

The Companies Act, 2013 has streamlined the process of issuance of securities and has laid out clear procedure and requirements to be complied with in case of each type of issue. It has plugged various loopholes and the doubts prevailing in the methods of issuing securities and has brought the much-needed clarity on the issue. In the present write up, we have given a general idea about the various methods of Issuance of securities under the Companies Act, 2013 and the meaning of each of them.  

Definition of Security [Section 2(81)] “Securities" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956  

As per clause (h) of section 2 of the 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 c0rporate. • derivative; • units or any other instrument issued by any collective investment scheme to the investors in such schemes; • security receipt as defined in clause (zg) of section 2 of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; • units or any other such instrument issued to the investors under any mutual fund scheme; • Government securities; • such other instruments as may be declared by the Central Government to be securities; and • rights or interest in securities.

Definition of Share [Section 2(84)] "Share" means a share in the share capital of a company and includes stock; Kinds of Share Capital (Section 43)

As per Section 43, Share Capital in case of a company limited by shares can be of following types: Equity Share Capital - equity share capital, with reference to any company limited by shares, means all share capital which is not preference share capital. Equity Share Capital can be further sub-divided into- • Equity Shares with Voting Rights, and • Equity Shares with Differential Voting Rights as to dividend, voting or otherwise.  

Preference Share Capital - preference share capital, with reference to any company limited by shares, means that part of the issued share capital of the company which carries a preferential right with respect to the payment of dividend and repayment of capital. Preference Share Capital may also have following rights: • In respect of dividends, in addition to the preferential rights to dividend, a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right to the dividend. • In respect of capital, in addition to the preferential right to the repayment of capital on winding up, a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.  

Nature of Shares (Section 44) The shares or debentures or other interest of any member of a company shall be movable property transferable in the manner provided by the articles of the company.  

Numbering of Shares (Section 45) Every share in a company having a share capital si be distinguished by its distinctive number except shares which are held in DEMAT form.  

 

METHODS OF ISSUING SECURITIES A public company may issue securities in any of following manners (Section 23):  

Public Offer — An issue of shares made by a public company to the public at large by means of a prospectus is referred to as public offer. A public offer may be in form of Initial Public Offer (IPO), further public offer or an offer for sale of securities to the public by an existing shareholder, through the issue of the prospectus. Provisions regarding public offers are covered under Chapter III Part I of the Companies Act, 2013.  

Private Placement - Any offer of securities or invitation to subscribe securities to a select group of Persons by a company (other than by way of the public offer) through the issue of a private placement offer letter and which satisfies the conditions specified in Section 42.

Provisions regarding private placement are covered under Chapter III Part 2 of the Companies Act, 2013.  

If a company, listed or unlisted, makes an offer to allow or invites subscription, or allots, or enters into an agreement to allot, securities to more than the 200 persons, whether the payment of the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part 1 of Chapter III of the Act.  

Rights Issue — Rights issue refers to a further issue of share capital made by a company having share capital to its existing equity shareholders in proportion to their existing shareholding by sending a letter of offer and by complying with the provisions contained in Section 62 of the Act read with relevant rules made thereunder.  

— A further issue of shares made by a company having share capital to its existing shareholders without receipt of any consideration from the shareholders for Bonus Issue issuance of such shares. The issue of bonus shares is covered under Section 63 of the Act read with relevant rules made thereunder.  

"Sweat equity shares” means such equity shares as are issued by a company to its directors or employees at discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Provisions relating to Sweat Equity Shares issue of sweat equity shares are covered under Section 54 of the Act read with relevant Rules made thereunder. An offer of shares to be employees of the company in compliance with Section 62 of the Act read with relevant rules made Employees Stock Options thereunder.  

Preferential Offer- 'Preferential Offer' means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities. Provisions relating to issue on shares on preferential basis are contained in Section 62 of the Act read with relevant rules made thereunder.  

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