Presentation on theme: "Recap 1. Issue of share at discount 2. Issue of share are premium 3. Issue of share in lieu of outstanding balance of loan 4. Further issue of share capital."— Presentation transcript:
Recap 1. Issue of share at discount 2. Issue of share are premium 3. Issue of share in lieu of outstanding balance of loan 4. Further issue of share capital (Right issue) 5. Share certificate 6. Duplicate certificate 7. Commission on sale of shares.
Outline 1. Reduction of Capital 2. Conditions for Reduction of Capital 3. Reduction of Capital and Objecting Creditors 4. Liability of Members in Respect of Reduced Shares 5. Publication of Reasons for Reduction 6. Purchase & Reduction of Shares 1. 6.1Prohibited Companies 2. 6.2 Exception to the General Rule as in 6.1 3. Redemption of Shares 7. Purchase of Its Own Shares by a Listed Company 1. Points to be Considered 2. Default of Provisions
Reduction of capital The process of decreasing a company's shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons including increasing shareholder value and producing a more efficient capital structure.
1. Reduction of Capital (Section 96) 1. A company limited by shares or by guarantee, and which has share capital authorized by its articles, can reduce its share capital after passing a special resolution. 1. Methods of reduction of share capital: i. To extinguish or reduce the liability on any of its shares in respect of the amount not paid. ii. To cancel any paid-up share capital which is lost or not represented by available assets iii. To pay of any paid-up share capital which is in excess of the needs of the company.
2. Conditions for Reduciton of Share Capital 1. The authority to reduce the share capital must be given by the articles. 2. Where a company has passed a special resolution, called “A Resolution for Reducing Share Capital”, it may apply to the Court for an order confirming reduction. (Section 97) 3. The company shall add, until such date as the Court may fix, the words “reduced” as the last words of its name.
3. How to Satisfy Objecting Creditors In the process of reduction of share capital, EVERY creditor would be entitled to raise an objection on the process of reduction. Ways to satisfy objecting creditors: If repayment of the amount is due, then the company would satisfy the creditor by paying them off. (Section 99) For the process of reduction, the consent of the creditors may also be taken. (Section 100 & 101) The court may order reduction in terms and conditions as the court thinks fit and secure the amount. (Section 102 & 103)
4. Liability of Members in Respect of Reduced Shares (Section 104) 1. Past or present members of the company shall not be liable for the amount reduced except in the case the liability of a creditor is not met by the company, and that creditor was not included in the list of creditors determined by the Court due to his ignorance.
4. Liability of Members in Respect of Reduced Shares (Section 104) 2. In this case, every person who was a member of the company on the day of reduction would be liable to contribute for the payment of that debt, or claim such amount as he would have been acquired to pay if the company were wound up. i. If the company is actually wound up, the Court shall determine the list of such contributories and the amount of contribution required from them. ii. However, all these arrangements would not affect the rights of the contributories among themselves.
5. Publication of Reasons for Reduction (Section 106) The Court may require the company to publish, in the manner specified by the court, the reasons for reduction or such other information in regard thereto, as the Court may think expedient, in order to inform the public about the CAUSES which led to reduction.
Financial assistance in law refers to assistance given by a company for the purchase of its own shares or the shares of its holding companies. In many jurisdictions such assistance is prohibited or restricted by law.
6. Purchase & Reduction of Shares (Section 95) 6.1 Prohibited Companies 1. Companies are prohibited from purchasing their own shares or the shares of its holding companies, except as stated in 6.2 2. The companies except private companies, which are not subsidiaries of public companies, are also prohibited from giving any financial assistance by means of giving loans or guarantee for the purchase of its own shares or the shares of its holding company.
6. Purchase & Reduction of Shares (Section 95) (Continued) 6.2 Exception of the General Rule as in 6.1 Following employees can be given loans etc. by a company for the purchase of its own shares (if giving of such loan is part of their contract of service): 1. Full time employees excluding directors; and 2. Chief executive of the company, who before his appointment was not a director of the company.
6. Purchase & Reduction of Shares (Section 95) (Continued) 6.3 Redemption(to buy back) of Shares Companies are allowed to redeem their redeemable shares and securities, which are issued in accordance with the provisions of the Ordinance.
7. Purchase of its Own Shares by a Listed Company (Section 95A) 7.1 Points to be Considered 1. Listed companies have been allowed to purchase their own shares. Following points must be considered in this regard: a listed company may, subject to provision of this section and the rules framed by the Commission in this behalf, purchase its own shares. The purchase shall be authorized by a special resolution, which shall indicate maximum number of shares to be purchased, the maximum price at which the shares may be purchased, and the period within which the purchase is to be made.
7. Purchase of its Own Shares by a Listed Company (Section 95A) 3.The notice of the meeting, in which the special resolution authorizing the purchase of shares is proposed to be moved, shall be accompanied by an explanatory statement containing all material facts including the following: 1. Justification for the purchase 2. Source of funding 3. Effect on financial position of the company; and 4. Nature and extent of the interest, if any, of every director, whether directly or indirectly.
7. Purchase of its Own Shares by a Listed Company (Section 95A) 4.The purchase shall always be in cash and shall be out of the distributable profits. 5. Where shares are purchased by a company on premium, the amount of premium shall be charged to Share Premium Account of the company OR in the absence of any balance therein, to the distributable profits of the company.
7. Purchase of its Own Shares by a Listed Company (Section 95A) (Continued) 6. Where purchase is made at a price lower than the nominal value of shares, the difference shall be credited to the reserve created under sub- section (10).
7. Purchase of its Own Shares by a Listed Company (Section 95A) (Continued) Declaration of solvency: 8.The majority of the directors, including the Chief Executive, shall at a meeting make a declaration of solvency verified by an affidavit to the effect that they have made a full inquiry into the affairs of the company, and that after having done so, they have formed the opinion that the company shall continue to operate as a going concern and that it is capable of meeting its liabilities on time during the period up to the end of the immediately succeeding financial year.
7. Purchase of its Own Shares by a Listed Company (Section 95A) (Continued) 9. The purchase shall be made through a tender system & the mode of tender shall be decided by the company in general meeting through a special resolution. 10. The shares purchased under this section shall not be resold and shall be cancelled. The amount of the company’s paid-up share capital shall be diminished by the nominal value of such shares accordingly. The amount by which the company’s paid up capital is t diminished on cancellation of the shares purchased shall be transferred from the distributable profits to an account to be called “Capital Re-purchase Reserve Account”.
7. Purchase of its Own Shares by a Listed Company (Section 95A) (Continued) 1. Where a company has purchased its own shares it shall maintain a register of shares so purchased and enter therein the following particulars, namely: 1. Number of shares purchased 2. Consideration paid for the shares purchased 3. Mode of purchase 4. The date of cancellation of such shares
7. Purchase of its Own Shares by a Listed Company (Section 95A) (Continued) 3. A return about the purchase of shares containing such particulars relating to purchase along with the declaration of solvency made shall be filed with the Commission and the registrar within 30 days of the purchase.
7. Purchase of its Own Shares by a Listed Company (Section 95A) (Continued) Default (failure to pay) of Provisions Regarding Purchase On default of the provisions mentioned in 7.1, a company is punishable with a fine of Rs. 1 million, and responsible officers are punishable with imprisonment for a period of up to 6 months, or a fine of Rs. 1 million, or both.
Alteration of Capital: Provisions Regarding Alteration Of Capital (section-92) A company limited by shares, if authorized by its articles, may alter the conditions of its memorandum so as to: 1. Increase the share capital. 2. Consolidate and divide the whole or any part of its share capital into shares of a larger amount than its existing shares. 3. Sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum. 4. Cancel shares which have not been taken up or agreed to be taken up by any person.
Filing of a notice to Registrar All these powers must be exercised by the company only in the general meeting. Company shall file a notice of exercising the power with the registrar within fifteen days from the date of cancellation, consolidation and division, or passing of a resolution for increase in share capital or as the case may be.
Consolidation or Sub-division In the case of consolidation or sub division, the rights being attached to the new shares shall be strictly proportional to the rights attaching to the previous shares so consolidated or sub-divided. Moreover where new shares issued are of a class, which already exist, the new shares shall carry the same rights as are given to shares, right issue and dividend.
Pari Passu The new shares issued shall rank pari passu (equal footing) with the existing shares in all matters including bonus shares, right issue and dividend.
Upcoming 1. Transfer and transmission of shares 2. Refusal to transfer shares 3. Appeal against refusal for registration of transfer 4. Transfer of shares to successor-in-interest 5. Transfer to nominee of a deceased member