Properly filled-in application forms must be forwarded to the company or to the bankers to the issue along with necessary application money. It may be mentioned here that there are legal restrictions imposed on the company under Section 53 of the Companies Act, 2013 for the issue of shares at a discount. Sometimes some shareholders may pay a part or whole of the amount due on a share before the amount is called up. Equity share is also called ordinary share or nominal share or common share. The holders of these shares are the real owners, risk-takers, and care-takers of the company and they have control over the affairs of the company and enjoy the right of voting. Suppose XYZ Tech Solutions, a cutting-edge technology company, decides to go public through an IPO.
Issue of Shares is the process in which companies allot new shares to shareholders. The company follows the rules prescribed by Companies Act 2013 while issuing the shares. As the name suggests, issued share capital refers to the amount of capital a company raises by means of issuing stocks. While this entitles you to receive profits in the form of dividends from the company, you also have to partake in the losses. In contrast, preference shares give you a fixed dividend at lower risk.
Process of the issue of shares
- Preference shares carry special rights or preferential treatments, especially in regard to dividend receipt and capital reimbursement when an organisation is winding up.
- This is the first step of the Issue of Shares wherein an enterprise releases a prospectus to the public.
- Also known as ordinary shares, equity shares give ownership rights proportionate to the shareholding.
- Companies can issue shares to their employees and directors as a means of compensation, usually when they perform excellently.
It also states the opening date of subscription list, amount payable on application, on allotment & the earliest closing date of the subscription list. Conversely, holders of non-convertible preference shares are not entitled to that provision. It denotes the total amount of capital that a company can raise by issuing stocks, as mentioned in the Memorandum of Association (MoA). Preference shares carry special rights or preferential treatments, especially in regard to dividend receipt and capital reimbursement when an organisation is winding up. Share, as defined in the Companies Act 2013, is the measure of a shareholder’s interest in a company’s assets. In other words, shares represent a shareholder’s stake of ownership of a company.
A share is issued by a company or can be purchased from the stock market. Share capital is the amount of ‘investment in shares of a company’ made by the promoters and members of that company. A share is a unit of account for various financial instruments, and more particularly for the total share capital. No, allotment of shares is the issuance of new shares, whereas the distribution of dividends involves paying a portion of profits to shareholders in cash or additional shares.
These shares can be purchased by public individuals or even corporations. A share is a unit of the total capital of an enterprise divided into equal portions in the profits of the company (if there is profit) in the form of dividends. So, if a total capital of an enterprise is Rs.100 and divided into 20 parts, then each share will cost Rs.5, which can be bought by individuals or companies. There are a number of different types of shares including right shares, preference shares, bonus shares, sweat equity shares, equity shares, and employee stock options plans. It is a minimum amount that must be raised when the shares are offered to the public during the issue of shares. This minimum subscription cannot be less than 90% of the issued capital and is usually set by the Board of Directors.
In another instance, when there is a bankruptcy, the preferred shareholders are given preference in matters of dividend sharing. So, they receive the dividend even before the common shareholders and have an upper hand. The outstanding amounts are transferred to an account called up as “Calls-in-Arrears” account. The Balance of calls-in-arrears account is deducted from the Called-up capital in the Balance Sheet. Conversely, in the case of non-cumulative preference shares, the dividend amount is not carried forward if an organisation does not pay dividends in a specific year.
Allotment of Shares
Issue of share is a process through which company issues fresh shares to present and new shareholders for raising required capital. Shareholders of company can either be corporates, institutions or individuals. A procedure of share issue is conducted by companies in accordance with rules prescribed in companies act 2013.
Types of Ordinary Equity Shares
While the former allows for voting rights to the shareholders, the latter does not permit the holders of any rights. The Directors pass resolution in types of issue of shares the board meeting for allotment of shares indicating clearly the class & no. of shares allotted with the distinctive numbers. Letters of Regret are sent to those who are not allotted any shares & application money is refunded to them. When an issue of securities is made by an issuer to its present/existing shareholders, it is called a right issue. The rights are offered in a particular ratio to the number of securities held as on the record date.
Reserve Capital
The following are some of the examples where an Allotment of Shares may be considered. This is the first step of the Issue of Shares wherein an enterprise releases a prospectus to the public. It is also considered as an asset because in case a company makes a profit, an amount in proportion to the share held by you will be provided to you in the form of a dividend. Anyone who holds a share is called a shareholder for that specific financial asset or organization. When an issue/offer of securities is made to the public for subscription/purchase, it is called a public issue.
ABC Ltd is a company having a share capital of Rs. 10 lakh, which is divided into 10,000 shares with a face value of Rs. 100 each. If anyone wishes to buy a stake in ABC Ltd, they can purchase shares at Rs. 100 each. This capital cannot be called for payment from the shareholders except in the case of winding-up. The amount of call money that has not been paid by the shareholders is termed as calls-in-arrear. However, the provision of this section does not apply to a private limited company that is not a subsidiary of a Public Company.
Due to the difference in voting rights, the ‘A’ equity shares traded at a discount to ordinary shares with complete voting rights. The authorized signatory is at least one director of the company and the company secretary. On allotment of shares, share certificates are issued to the successful applicants. A Share Certificate is a document that provides evidence of ownership of shares in a limited company.
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The formalized concept of allotment of shares gained prominence as corporate laws and regulations govern stock issuance, trading, and ownership. This is the last step in issues of shares wherein after completing the formalities from the investor’s side, the enterprise will issue the shares to the investors. As there is a minimum subscription limit, one has to wait till that quota is fulfilled. When the shares are issued at a price higher than the nominal value of the shares then it is called as shares issued at a premium. The amount of premium is decided by the board of Directors as per the guide lines issued by SEBI.
For example, H Ltd. has Rs. 8, 00,000 authorized capital of Rs. 10 each out of which it invited applications for the issue of 50,000 shares of Rs. 10 each. One of the primary aims of allotting shares is to raise capital for the company. Allotting shares allows the company’s ownership to be available for distribution among many shareholders. This leads to increased liquidity in the company’s stock as more investors participate in trading, potentially improving the stock’s marketability. While dilution is not necessarily an aim, it’s an outcome that needs management while allotting new shares. The types of issues of shares are usually set by a company or enterprise that is issuing its share to the public.
