PREFERENCE SHARES AND REDEMPTION OF SHARES MEANING OF DEBENTURES & ITS TYPES

Transcription

1 By R S BHATIA (FCS)

2 INTRODUCTION TYPES OF SHARES MODES OF ISSUE OF SECURITIES PRIVATE PLACEMENT SHARES CERTIFICATE TRANSFER & TRANSMISSION OF SECURITUES ALLOTMENT PREFERENCE SHARES AND REDEMPTION OF SHARES MEANING OF DEBENTURES & ITS TYPES

3 As per Section 2(81) of the Companies Act, 2013 Securities means the securities as defined in the Section 2(h) of SCRA, 1956 and which states that the Securities Include:- o Shares, scrips, stocks, bonds, debentures, debenture stocks etc. in or any incorporated Company or other body corporate. o Derivatives, o Units issued by any Collective Investment Scheme to the investors in such scheme.

4 o Units or any other such instruments issued to the investors under any Mutual fund scheme. o Government Securities or; o such other instruments, rights or interest therein shall be declared by the Govt. to be securities.

5 Section 2(84) of the Companies Act,2013 inter alia states that the share means a share in the share capital of a company and includes stock. (The term stock has not been defined in the New Act) Section 43 of the Companies Act,2013 inter alia states that the Share capital of a Company shall be of two kinds:- Equity Share Capital Preference Share Capital

6 yp Types of Equity shares Equity shares with voting ti rights i ht Equity shares with differential h rights NOTE:- Equity NOTE E i shares h with i h diff differential i l rights has been defined under the Rule 4 of Companies (Share Capital & Debentures) Rules,2014

7 In case of listed Companies Equity shares are issued and are traded every day in the stock market. Equity shareholders only get dividend after preference shareholders. The returns on equity shares are not at all fixed. It depends on the amount of profits made by the Company The Board of Directors decides how much of the dividends will be given to equity shareholders. Shareholders may accept or reject the offer at the Annual General Meeting.

8 As per section 47 r/w section 50(2) of the Companies Act, 2013 every member of a company holding equity share capital (with voting rights) shall have a right to vote on every resolution placed before the company and his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.

9 Rule 4 of the Companies (Share Capital and Debentures) Rules,2014 1) No company limited by shares shall issue equity shares with differential rights unless the following conditions are satisfied:- a) The issue is authorized by the Articles b) Issue is authorized by members by Special resolution. ( resolution in a listed company to be passed by postal ballot)

10 c) Shares with differential rights shall not exceed 26% of the total paid-up equity. ( Paid Up Capital + Shares Issued with Differential Rights) C h ld h k d f di ib bl d) Company should have track record of distributable profits in last 3 years in F.Y.

11 e) Company has not defaulted in :- filing of financial statements and annual returns for 3 financial years immediately preceding the financial years in which it is decided to issue such shares. the payment of a declared dividend, the payment of term loan, statutory payments etc.

12 2) The notice of meeting in which S.R is going to be passed shall be accompanied with the Explanatory Statement and Board s Report which contains the following:- Total no. of shares details of the differential rights the percentage(%) of shares with differential rights to the post issue capital including shares issued with differential rights The price of the issue The diluted EPS. (As per AS-20)

13 3) The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential rights. 4) The holders of such shares shall enjoy all other rights such as bonus shares, rights shares etc.

14 Public Company can issue securities through following modes :- Through prospectus (Public offer) ( it includes IPO, FPO or offer for sale by an existing share holder through issue of prospectus) Private placement Rights Issue Bonus Issue

15 Under New Act, Private Company can issue securities through following modes:- Rights Issue Bonus Issue Private Placement All types of companies (Including OPC) can issue securities under ESOP scheme or Preferential Issue

16 Private placement means any offer of securities or invitation it ti to subscribe securities to a select group of persons by a company ( other than by way of public offer) through issue of a Private Placement offer letter and which satisfies the conditions specified u/s 42 r/w Rule 14 of the Companies(Prospectus and Allotment of Securities) Rules, 2014 CONDITIONS :- Applicable to all types of securities Company may make an offer or invitation to subscribe to securities through issue of a private placement offer letter- Form No. PAS-4

17 SR for each type of offer Explanatory Statement to give:- justification of price List of proposed allottees post and pre issue shareholding h pattern No offer to more than 200 persons in a financial year excluding QIBs or Employees under stock option scheme. Application form should be serially numbered and addressed to a specific person. Form can be sent in writing / in electronic form Company to maintain all records including PAN, Bank account details etc. in Form No. PAS-5 & to file with ROC (also with SEBI if company is listed) along with Form PAS-4 within 30 days from the date of circulation

18 Company to maintain all records including PAN, Bank account details etc. in Form PAS-5 No fresh offer unless previous offer completed/ withdrawn/ abandoned. This is applicable even if earlier offer is for different kind of security. Minimum investment size Rs 20,000/-000/ face value. Separate Bank Account for Application Money p pp y particulars of consideration received if the securities were issued for consideration other than cash.

19 As per Section 46 r/w Rule 5 of the Companies (Share Capital and Debentures) Rules,2014 A share Certificate is prima facie evidence of the title of person to such shares. Share Certificate should be issued to subscriber to M/A within 2 months. Every certificate of shares shall be in Form No. SH-1 Minimum subscribed capital brought in within 2 months as share certificates need to be issued within that time.

20 In the case of transfer/ transmission i share certificate t should be issued in One Month.( Earlier 2 Months) ( Rule 6 of said Rules) Duplicate Share Certificates shall be issued in lieu of those that are lost or destroyed with the prior approval of Board and payment of such fees as the Board thinks fit. ( Fee not exceeding Rs.50 per certificate) The Register of Renewed & Duplicate Share Certificates t maintained i in Form No. SH-2

21 As per Section 56 of the Companies Act, 2013 r/w Rule 11 of Companies( Share Capital & Debentures) Rules, 2014 company having share capital shall register a transfer of the securities of the company if:- o Instrument of transfer of securities shall be in the Form No. SH-4 o Instrument of transfer duly stamped, dated, & executed to be delivered within 60 days of execution. o The provisions of these section shall be applicable to all companies including listed ones.

22 o If in case of partly paid shares, an application of transfer of shares is made by the Transferor, then company shall give notice of application to the transferee in Form No. SH-5 and transferee must give reply of the notice within 2 weeks from the date of receipt of notice. o Time period within which h certificates t of all securities allotted, transferred or transmitted are to be delivered by the company (unless prohibited by any law) 2 months from the date of incorporation in case of subscribers to M/A

23 2 months from allotment in case of allotment of shares. 1 month from the date of receipt of transfer deed/ intimation of transmission. 6 months from the date of allotment in case of debentures.

24 As per section 39 of the Companies Act, 2013 r/w Rule 12 of Companies (Prospectus & Allotment of Securities) Rules, 2014 The amount payable on application on securities shall not be less than 5% of the nominal amount of the security. The application money should be transferred in separate bank account within 60 days from the date of such receipt. The company should make allotment within 60 days.

25 Otherwise refund within next 15 days from the same. Delay in refund beyond this period :- 12% interest. t Also from the 76 th day the amount will be treated as deposit. Penalty for contravention of section 42 :- Higher of amount involved in the offer or Rs. 2 Cr. And also refund all money to subscribers. Return of Allotment in PAS-3 (30 days) Complete list of all security holders containing the full name, address, PAN & ID of such security holders,

26 Complete list of all security holders containing the full name, address, PAN & ID of such security holders, Shares issued for consideration other than cash should be executed as an agreement which is duly stamped, and if agreement is not reduced to writing then complete details of contract shall be filed with ROC in Form No. PAS_3 along with the valuation report.

27 As per Section 43(b) of the Companies Act, 2013 Preference Share Capital means that part of issued capital which carries or would carry a preferential right with respect to:- payment of dividend (either as a fixed amount or an amount calculated at a fixed rate) repayment of capital (in case of winding up) Preference share holders have a right to vote on resolutions affecting their rights. However, if dividend is not paid on a Class of preference shares for a period of 2 years or more, then such shareholders shall have a right to vote on all resolutions placed before a meeting of a company

28 As per section 55 of the Act, 2013 r/w Rule 9 of Companies (Share Capital and Debentures) Rules, 2014 Company limited by shares :- shall issue only redeemable preference shares. Preference shares shall liable to be redeemed within a period not exceeding 20 years. For infrastructure projects preference shares can be issued for a period of more than 20 years but for less than 30 years. If rights of any particular class of shareholders affected then consent of at least 75% of shareholders of that class is required to pass the resolution.

29 As per Section 2(30) of the Companies Act, 2013 Debentures Includes:- Debenture Stock; Bonds or ; Any other instruments evidencing a debt (whether constituting a charge on the assets of the company or not). As per Section 71 of the Companies Act,2013 r/w Rule 18 of the Companies (Share Capital & Debentures) Rules, ) A Company may issue wholly or partly convertible debentures and such issue shall be approved by a Special Resolution passed at a General Meeting. 2) Company cannot issue debentures carrying voting rights.

30 3) Company should create Debenture Redemption Reserve Account out of the distributable profits. 4) It is mandatory to appoint debenture trusty if debenture is issued to more than 500 persons 5) Debenture Trust Deed indemnifies or exempts the Debenture Trustee against the loss. However, such deed is void in case of Breach of Trust. 6) The liability of Debenture Trustee shall be exempt subject to the approval of debenture holder holding not less than 3/4 th in value of total debentures. 7) Payments of interest & redemption shall be with the terms of the issue.

31 8) Secured debentures maximum tenure 10 years. But for Infra it is 30 years. 9) Trust Deed Form SH ) Maintenance of liquid assets of 15% of debentures maturing during the year. This can be used only for redemption and should not fall below 15% 11) such an issue of debentures shall be secured by the creation of a charge, on the properties or assets of the company, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon

32 any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within five years: Provided that if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer; 6

33 Security Point of View Tenure Point of View Mode of Redemption Point of View Secured Debentures Unsecured Debentures Redeemable Debentures Perpetual Debentures Convertible Debentures Non- Convertible Debentures