Presentation on theme: "PRESENTATION ON Raising Funds – Public Issue / Rights Issue / Private Placement Share Capital & Debentures, Deposits (Chapters III, IV & V – The Companies."— Presentation transcript:
1PRESENTATION ONRaising Funds – Public Issue / Rights Issue / Private PlacementShare Capital & Debentures, Deposits(Chapters III, IV & V – The Companies Act, 2013)K. SETHURAMANAugust 01, 2014
5Public Offer & private placement (S.23) Public company to issue securities:a) To public through prospectus.b) Through private placement.c) Through rights issue or bonus issue.Private company to issue securitiesThrough Rights Issue or Bonus IssueThrough Private PlacementPublic Issue includes:Initial Public Offer / Further Public OfferOffer for saleNote: Provisions contained in Chapter III (Public Offer & Private Placement) Chapter IV (Share Capital & Debentures) in so far as they relate to issue and transfer of securities by listed companies and companies which intend to get their securities listed shall be administered by SEBI (Section 24)
6Following are some of the additional disclosures: Prospectus (Sec 26)A company making a public issue also to comply with the disclosure requirements and matters to be stated in the Prospectus as per SEBI (ICDR) Regulations, 2009.Contents of Prospectus are listed out in the Section and in the Companies (Prospectus and Allotment of Securities) Rules, 2014Following are some of the additional disclosures:The sources of Promoter contribution in the prescribed mannerName and Address of CFOParticulars relating to (a) management perception of risk factor specific to the project, (b) gestation period of the project, (c) extent of progress made in the project and (d) deadline for completion of ProjectLitigation / Legal action pending or taken by any Govt dept or statutory body against promoters of the company during the last five years
7Variation in terms of Contract or Objects in Prospectus (Section 27) A company shall not vary at any time the terms of contract or objects for which the prospectus was at any time issued except with the approval of shareholders by passing a special resolution through Postal Ballot.Justification for such variation should be clearly set out in the notice and published in newspapers in Form PAS - 1.The notice of the Special Resolution to contain, inter-alia:Original purpose or object of issueTotal money raised and spent for the object stated in the prospectusUnutilized money so raised through prospectusParticulars of proposed variation and reasons or justification for seeking variationThe risk factors pertaining to the new object
8Variation in terms of Contract or Objects in Prospectus (Section 27) Such variation may be made not more than one time in any particular public offer.Dissenting shareholders to be given an exit offer by Promoters or Controlling Shareholders at the exit price specified by SEBI.Public issue proceeds cannot be used for buying / dealing in equity shares of any other listed company.
9Offer of Sale (Section 28) In consultation with Board of Directors of a company, certain members may offer whole or part of their holdings to the public.Document offering such sale to comply with prospectus requirements and the offer document deemed to be a prospectus.The members offering the shares will reimburse the company all expenses incurred on this matter.In an Offer for Sale, the dividend on the shares offered for the entire year shall be payable to the transferees
10Dematerialized Form (Section 29) Every company making public offer; andPrescribed class of public companies,shall issue securities only in dematerialised form.Any other company may convert its securities into dematerialised form or issue its securities in physical form
11Criminal Liability for mis-statements in Prospectus (Sec 34) If a prospectus issued 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.The offence would be non-compoundable.
12Civil Liability for mis-statement in Prospectus (Sec 35) Company and the following persons liable to pay compensation for any statement included in the prospectus which is misleading, to every person who has subscribed for securities and has sustained any loss or damage as a consequence.Director at the time of issue of prospectus.Promoter of the company.Person who has authorised himself to be named as a director.Person who has authorised the issue of prospectus.An expert.Above persons personally liable without any limitation of liability for all losses incurred by the subscribers if it is proved that prospectus was issued with intent to defraud the applicants.
13Punishment for fraudulently inducing persons to invest money (Sec 36) Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into-(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting securities; or(b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; or(c) any agreement for, or with a view to obtaining credit facilities from any bank of financial institution;Shall be liable for action under Section 447.
14Action by affected persons (Sec 37) New Provision in the ActA class action suit may be filed by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the Prospectus
15Punishment for personation for acquisition of Securities (Sec 38) Any person who:Makes or abets making of an application in a fictitious name to a company for acquiring its securitiesMakes or abets making multiple applications for acquiring its securitiesOtherwise induces a company to allot or register any transfer of securities in a fictitious nameShall be liable for action under section 447.The Court may order a convicted person for disgorgement of gain and seizure and disposal of securities in possession of such person.Amount received as above to be credited to IEPF.
16Securities to be dealt with in stock exchanges (Sec 40) Company making a public offer, before making the offer shall make an application to a recognised stock exchange and obtain permission for listing the securitiesName of the stock exchanges to be stated in the ProspectusAll application monies received from Public to be kept in a separate Bank Account in a scheduled bank except for adjustment against allotment of securities or refund of monies within the time specified by SEBI where the company is unable to allot securitiesWaiver of compliance with any of the above requirements shall be voidCompany may pay commission in connection with the subscription of its securities
17Private Placement (Sec 42) New Act has tightened provisions relating to private placement to protect stakeholders.Private Placement is an Offer of Securities or invitation to subscribe securities to a select group of persons not exceeding 50 or such higher number (presently 200) as may be prescribed (excluding QIBs and ESOP) in a financial year for each kind of security, that is equity, preference shares or debenturesA company may make private placement through issue of a private offer letter in Form PAS-4.Thus, any issue other than a public issue or a Rights issue is a private placement.
18Key provisions governing Private Placement Provisions common to all class of companies – private, public (listed and unlisted)Listed companies are governed by SEBI ICDR Regulations, 2009Offer through a Private Placement, Offer letter to a selected known group of persons with the prior approval of shareholders by way of a special resolution for each offer (equity shares)Company to pass a special resolution only once in a year for all offers made during the year in case of issue of Non- Convertible DebenturesOffer to be made to persons whose names are recorded by the company prior to making the offerApplication serially numbered with Letter of Offer to be addressed specifically to the concerned person and no other person shall be allowed to apply through such formEven an agreement to allot securities to more than the prescribed number of persons (whether money received or not) shall be deemed to be an offer to the Public
19Key provisions governing Private Placement Offer in a financial year not to exceed 200 persons in aggregate for each kind of security. Value of offer to each person not to be less than Rs 20,000 face value(This requirement not applicable to NBFC Companies and Housing Finance Companies)If a company makes an offer to allot securities to more than the prescribed number of persons, the same to be deemed to be an offer to the publicNo fresh offer of any securities to be made unless allotments of all earlier offers of any other security are completed or withdrawn or abandoned.The monies payable towards subscription should not be and cannot be in cash.
20Key provisions governing Private Placement Subscription money by way of cheque / draft from the bank account of the sole / first holders nameAllotment to be completed within 60 days of receipt of application money – refund within 15 days thereafter; Else 12% from 60th dayApplication money to be kept in a separate Bank account till allotment and cannot be utilised other than for allotment / refundComplete information about private placement to be filed with RoC within 30 days of the private placement offer; Listed Company – also with SEBI
21Key provisions governing Private Placement The Company to maintain a complete record of private placement in Form PAS-5No advertisement or media announcement or engage agents to inform the public at large of the private placement is permittedIn case of contravention, the company promoters and directors are liable for penalty which may extend to the amount involved or Rs. 2 crore whichever is higherCompany to refund all monies to subscribers within 30 days of the order imposing penalty
22Additional requirement for preferential issue of Equity shares / convertible securities No partly paid securities shall be issuedAllotment to be made within 12 months of the date of the special resolution; Else another special resolution shall be passed.Various disclosures required in the Explanatory Statement including (a) basis of price of price arrived with Report of Registered Valuers (b) object of the issue (c) name of the proposed allottees and percentage of post preferential offer capital that may be held by them (d) change of control if any consequent to the preferential offer*Till a Registered Valuer is appointed as per the New Act, the valuation report shall be made by an Independent Merchant Banker registered with SEBI or an independent Practising CA having a minimum experience of 10 years [Amendment to the Rules]
23Rights IssueCompanies Act, 2013 has not defined the concept of ‘Rights Issue’; but it is defined under the SEBI ICDR Regulations‘Rights Issue’ means an offer of equity shares and convertible securities by a listed issuer to the shareholders of the issuer as on the ‘record date’ fixed for the said purposeNo complicated procedures unlike in the case of ‘Public Issue’ or ‘Private Placement’Requirements of Rights IssueRights issue to be made after securing board of directors approval at the Board meeting
24Rights Issue The issue price need not be valued by registered valuers Offering shares (Equity / Preference Shares) to the holders of equity shares on a uniform basis (in the same proportion in reference to his equity holding on a ‘cutoff’ date)Offer to be kept open for at least 15 days and not exceeding 30 days (issue cannot be open ended)Letter of offer to be despatched through registered post / speed post at least 3 days before the opening of the issueListed Companies whose shares are listed should adhere to the requirement set out under SEBI (ICDR) Regulations, 2009Non compliance with the requirements of a ‘Rights Issue’ shall attract punishment under Section 450 as no specific penalty or punishment is provided in the section regulating ‘Rights Issue’.
25Employees’ stock option Company having share capital may make an offer of shares to employees under a Scheme of ‘Employees’ Stock Option’ subject to passing of a special resolutionIssue price need not be valued by registered valueIssue of ESOP shares by unlisted companies will be governed by Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.Issue of ESOP Shares by a listed company whose shares are listed will be governed by regulations made by SEBI.
26DebenturesA company may issue debentures – convertible or non- convertibleIssue of convertible debentures into shares requires approval of shareholders by passing a special resolution.Debenture Trustee to be appointed before issuing a prospectus or making an offer to company’s members exceeding 500 personsCompany issuing debentures to execute debenture trust deed not later than 60 days after the allotment of debenturesNo secured debentures can be issued with a redemption period beyond ten years from the date of the issue; A company engaged in setting up infrastructure projects can issue debentures which are redeemable not beyond thirty years from the date of the issue.
27DebenturesA company (including manufacturing / infrastructure) issuing NCDs to create DRR equivalent to atleast 25% of the amount raised by the debenture issue before the debenture redemption commencesNo DRR by All India Financial Institutions and Banking Companies for debentures issued;NBFCs registered under RBI Act to create DRR of 25% for debentures issued through public issue; No DRR in case of privately placed debentures by them.The company shall on or before 30th April each year invest or deposit a sum which is not less than 15% of the amount of its debentures maturing during the year ending on 31st day of March of the next year (As per Rules)DRR shall not be utilised by the company except for the purpose of redemption of debentures.
28Issue of preference shares No company limited by shares shall issue any preference shares which are irredeemableA company may issue preference shares to be redeemed within a period of Twenty years from the date of their issueA company may issue preference shares redeemable beyond 20 years for making funds required for infrastructure projects and the redemption shall be at the option of the preference shareholdersCompanies engaged in infrastructure projects may redeem preference shares from the 21st 10% minimum redemption such that all the preference shares are redeemed not later than 30 years from the date of issue of Preference Shares.
29Issue of preference shares Where dividend payable on Preference Shares (cumulative or non-cumulative) is in arrears for a period of two years or more, such class of preference shareholders shall have a right to vote on all resolutions placed before a meeting of the companyPremium payable on redemption of preference shares issued w.e.f will be provided only out of profits of the company
30Variation of Shareholders’ Rights (Sec 48) (Section not notified yet) The rights attached to a class of shares may be varied with consent in writing of the holders of not less than three-fourths of the issued shares of that class, or by means of a special resolution passed by the shareholders of that class.If the variation affects the rights of any other class of shareholders, consent of such other class is necessary in a similar way.
31Prohibition on issue of shares at a discount (Sec 53) No company shall issue shares at a discount (except sweat equity shares)Any shares issued at a discount shall be void
33ACCEPTANCE OF DEPOSITS (Sec 73) No company to invite, accept or renew deposits from public, except as provided under Chapter V (only eligible Companies can accept deposits from public)Provisions not applicable to banking company, NBFC – registered with RBI and other company as may be specified by CG in consultation with RBIDeposits can be accepted by a company from its members subject to passing a resolution in general meeting and subject to such rules as may be prescribed
34accepting deposits from members [Sec 73(2)] Company to comply with the Companies (Acceptance of Deposits) Rules, 2014Company to issue circular to its members containing details as prescribed , viz. credit rating, financial position, total number of depositors and amount due, in respect of any previous deposits, etc.Company to file copy of circular with ROC before the issue of circular to the membersCompany to deposit not less than 15 % of amount maturing during a financial year and the next financial year next following, in Deposit Repayment Reserve Account (compare with DRR provisions)
35accepting deposits from members [Sec 73(2)] Various enhanced disclosures under the Companies (Acceptance of Deposits) Rules, 2014General InformationManagement perception of risk factorsDetails of default including amount involved, duration of default and present status in repayment of:Statutory duesDebentures and interest thereonLoans from any bank or financial institutions and interest thereon
36accepting deposits from members [Sec 73(2)] B. Particulars of Deposit SchemeDate of passing of Board ResolutionDate of passing resolution in General Meeting authorising the invitation of such depositsType of deposits - whether secured or unsecuredOutstanding deposits as on the date of issue of circular and amount of deposit proposed to be raised and amount of deposit repayable within 12 monthsObjects of raising the depositParticulars of Credit rating obtainedExtent of deposit insuranceShort particulars of charge created in case of secured depositsInterest of directors, promoters and KMPs in such deposits
37accepting deposits from members [Sec 73(2)] C. Financial Position of the CompanyInterest coverage ratio for the last three yearsAudited Cash flow statement for the last three yearsAny changes in accounting policies in the last three years
38accepting deposits from members [Sec 73(2)] D. Declarations by directors to include:That the Company will not become insolvent within a period of one year from the date of the circularThat the deposits outstanding before have been repaid / will be repaid and till repayment they shall be unsecured and rank pari passu with the unsecured liabilitiesThat in case of adverse change in credit rating, depositors will be given chance to withdraw deposits without any penaltyThat the deposits shall be used only for the purposes indicated in the Circular
39accepting deposits from members [Sec 73(2)]….(contd) Provide deposit insurance as prescribed:Deposit insurance should be taken at least 30 days before the date of acceptance or renewal of the deposit.Deposit insurance to cover for payment of an amount not less than Rs.20,000 for each depositor.The deposit insurance to be taken by the company.Note: MCA has amended the Companies (Acceptance of Deposits) Rules, 2014 to allow companies to accept deposits without deposit insurance for one year i.e. till
40accepting deposits from members [Sec 73(2)]….(contd) If the insurance cover is made ineffective, the company shall either rectify the default immediately or enter into a fresh contract within 30 days and in case of non-compliance the amount of deposits covered under the deposit insurance contract and interest payable thereon shall be repaid within next 15 days failing which it is liable to pay 15% p.a. for the period of delay and shall be liable for punishment in accordance with the provisions of the Act.
41accepting deposits from members [Sec 73(2)]….(contd) Certify that there is no default in repayment or payment of interestProvide security, if required or else, to clearly state as ‘unsecured deposits’ on every circular, form , advertisement , etc.For any grievance – depositors may apply to Tribunal
42accepting deposits from members [Sec 73(2)]….(contd) Exempted Deposits in the new Rules (only additional items)Application money or advance money received for subscription of security – if securities are either not allotted within 60 days from the date of receipt of application money or not refunded within 15 days from the date of completion of 60 days, such amount shall not be treated as an exempt deposit.Amount received from a relative of a director is not an exempt deposit.Amount received from a member in the case of a private company is not an exempt deposit
43accepting deposits from members [Sec 73(2)]….(contd) Debentures compulsorily convertible into shares of the company within five years is an exempt deposit.Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by RBI is an exempt deposit.Any amount received as an advance for supply of goods or services unless they are appropriated against supply of goods and services within 365 days is not an exempt deposit.
44accepting deposits from members [Sec 73(2)]….(contd) Terms and conditions for acceptance of DepositsPeriod: Repayable not less than six months or not more than thirty six months (may accept / renew deposits repayable no earlier than three months not exceeding ten percent of the paid up share capital and free reserves of the company)No company shall accept / renew any deposits from its members more than 25% of the aggregate of its paid up capital and free reserves. (outstanding at any point of time)No eligible company shall accept / renew:Deposits from its members exceeding 10% of its paid up share capital and free reserves. (outstanding at any point of time)Deposits from public exceeding 25% of its paid up share capital and free reserves. (outstanding at any point of time)4) No government company can accept in excess of 35% of its paid up capital and free reserves (outstanding at any point of time)
45accepting deposits from members [Sec 73(2)]….(contd) Rate of Interest and Brokerage: Not exceeding a rate maximum permitted by RBI for acceptance of deposits by Non-Banking Financial Companies. The person who is authorised in writing by the company to solicit deposits shall only be entitled to brokerage.6) The company shall not reserve a right to alter, to the prejudice or disadvantage of the depositor, any of the terms and conditions of the deposit, deposit trust deed and deposit insurance contract after the issue of circular and acceptance deposits.
46Deposits accepted before the commencement of the Act (Sec 74) Company to file with ROC, within 3 months from the commencement of the Act, that is by 30th June, 2014 (now extended to August 31, 2014) statement of all deposits accepted and remaining unpaid, interest thereon and details of arrangements made to repay all such amounts;Repay all deposits within one year from the commencement of the Act or from the date on which such payments are due, whichever is earlier
47Deposits accepted before the commencement of the Act (Sec 74) The above condition shall not apply if the company complies with the requirements under the Act and the Rules and continues to repay the deposit and interest for the remaining period of such deposit;Fresh deposits including renewals by eligible company to comply with the requirements under the 2013 ActTribunal may allow further time for repayment
48Deposits accepted before the commencement of the Act (Section 74 & 75) For non-compliance, company, in addition to repayment with interest, liable for fine up to Rs. 10 crore. Officer who is in default will be punishable with imprisonment extending to seven years or fine extending to Rs 2 crore or both. (Not notified yet)In case deposits were accepted with fraudulent intent or purpose and there is default in repayment, action under section 447 (non compoundable) and every officer responsible for accepting deposits be personally responsible without limitation of liability. (Not notified yet)For failure by a company to repay deposits or pay interest, any suit, proceedings or action may be taken by any person, group of persons or any association of persons who had incurred loss on that account – Class action suit. (Not notified yet)
49Acceptance of deposits from public (Sec 76) Eligible Public company, that is, a public company having networth of not less than Rs 100 crore or Turnover of not less than Rs 500 crore and which has secured special resolution of shareholders, and filed with RoC may accept deposits from public, subject to :Complying with provisions under section 73(2) – issue circular, etcComplying with the Companies (Acceptance of Deposits) Rules, 2014Obtaining rating from recognized credit rating agency every year during the tenure of deposits – for networth, liquidity and repaying ability,Informing the public of such ratingCompany accepting secured deposits from Public should secure the deposits by creating a charge on its assets within 30 days of such acceptance.