ISSUE OF SHARES-

RIGHTS/SWEAT/ESOP/B Company Law - I

ONUS SHARES 1
S. 23 (1) – PUBLIC COMPANY
23. (1) A public company may issue securities—
(a) to public through prospectus (herein referred to as "public offer") by complying with
the provisions of this Part; or
(b) through private placement by complying with the provisions of Part II of this Chapter;
or
(c) through a rights issue or a bonus issue in accordance with the provisions of this Act
and in case of a listed company or a company which intends to get its securities listed also
with the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992)
and the rules and regulations made thereunder.
Explanation.—For the purposes of this Chapter, "public offer" includes initial public offer
or further public offer of securities to the public by a company, or an offer for sale of
securities to the public by an existing shareholder, through issue of a prospectus.
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PUBLIC COMPANY – ISSUE OF
SHARES
According to S. 23(1) – A Public Company may issue shares in the form of:

1. Public Offer – IPO/FPO/OFS

2. Private Placement
3. Rights Issue of Shares
4. Bonus Issue of Shares

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S. 23 (2) – PRIVATE COMPANY
(2) A private company may issue securities—
(a) by way of rights issue or bonus issue in accordance with the provisions of this
Act; or
(b) through private placement by complying with the provisions of Part II of this
Chapter.

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PRIVATE COMPANY – ISSUE OF
SHARES
According to S. 23 (2) – A Private Company may issue shares in the form of:

1. Private Placement
2. Rights Issue of Shares
3. Bonus Issue of Shares

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RIGHTS ISSUE S. 62(1)(a)

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 Notified Date of
Further Issue of Share Capital Section: 01/04/2014

62. (1) Where at any time, a company having a share capital proposes to increase its
3&4

subscribed capital by the issue of further shares, such shares shall be offered—

(a)to persons who, at the date of the offer, are holders of equity shares of the company in
proportion, as nearly as circumstances admit, to the paid-up share capital on those shares
by sending a letter of offer subject to the following conditions, namely:—
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[(i) the offer shall be made by notice specifying the number of shares offered and limiting a
time not being less than fifteen days and not exceeding thirty days from the date of the offer
within which the offer, if not accepted, shall be deemed to have been declined;] RIGHTS
(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed
to include a right exercisable by the person concerned to renounce the shares offered to him
or any of them in favour of any other person; and the notice referred to in clause (i) shall
ISSUE
contain a statement of this right;

(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier
intimation from the person to whom such notice is given that he declines to accept the shares
offered, the Board of Directors may dispose of them in such manner which is not dis-
advantageous to the shareholders and the company;]

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RIGHTS SHARE – POINT TO
NOTE
Some Questions:

1. Is it a transfer of share?

2. Who gets this right?

3. What is the Offer Price?

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BONUS SHARE S. 63

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BONUS SHARE – S. 63
63. (1) A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account:
Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
(2) No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless
—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and
bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(f) it complies with such conditions as may be prescribed.
(3) The bonus shares shall not be issued in lieu of dividend.
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COMPANY (PROSPECTUS AND
ALLOTMENT OF SECURITIES)
RULES, 2014
Rule 14 - Issue of Bonus Shares:
The company which has once announced the decision of its Board recommending a
bonus issue, shall not subsequently withdraw the same.

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TATA CONSULTANCY
SERVICES – BONUS
ISSUE

https://www.tcs.com/events/issu
e-of-bonus-shares-2018

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BONUS SHARES
Some Questions:

1. Why Issued? What is the objective?

2. Who gets this right?

3. What is the Offer Price?

4. Does the Bonus Issue affect the Market Price of Share?

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DIFFERENCE
BETWEEN – BONUS
& RIGHTS SHARES
Consider the following points:

1. Payment?
2. Partly/fully Paid shares?
3. Minimum Subscription?
4. Right to Renounce?

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EMPLOYEE STOCK S. 62(1)(b)
OPTION SCHEME
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MEANING
Section 2(37) "employees' stock option" means:

“ the option given to the directors, officers or employees of a company or of its

holding company or subsidiary company or companies, if any, which gives such
directors, officers or employees, the benefit or right to purchase, or to subscribe for,
the shares of the company at a future date at a pre-determined price;”

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ESOS – S. 62(1)(B)
Section 62. (1) Where at any time, a company having a share capital proposes to
increase its subscribed capital by the issue of further shares, such shares shall be
offered—

(b) to employees under a scheme of employees' stock option, subject to 2&5[special

resolution] passed by company and subject to such conditions as may be prescribed; or

’As May Be Prescribed’ – Refers to Rule 16 of Company (Prospectus and Allotment of

Securities) Rules, 2014 - (Lays down the procedural guidelines for ESOS)

-SEBI – SEBI (Share Based Employee Benefits) Regulations, 2014

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ESOS
Some Questions:

1. Why issued?

2. What is the Offer Price? Issued at a Discount?

3. Does it Affect the Market Price of Share?

4. From when can the employee enjoy the rights of a shareholder?

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ESOS

Difference between Employee Stock Option Scheme

(ESOS) v Employee Stock Purchase Scheme (ESPS)

https://www.indiainfoline.com/article/news-top-story/coal-
india-ipo%E2%80%A65-discount-for-retail-investors-and-
employees-113101504479_1.html 19
SWEAT EQUITY S. 2(88) & S. 54

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MEANING
Section 2(88) "sweat equity shares" means:

“ such equity shares as are issued by a company to its directors or employees at a

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;”

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SWEAT EQUITY
54. (1) Notwithstanding anything contained in section 53, a company may issue sweat equity shares
of a class of shares already issued, if the following conditions are fulfilled, namely:—
(a) the issue is authorised by a special resolution passed by the company;
(b) the resolution specifies the number of shares, the current market price, consideration, if any, and
the class or classes of directors or employees to whom such equity shares are to be issued;
(c) 3[Omitted]
(d) where the equity shares of the company are listed on a recognised stock exchange, the sweat
equity shares are issued in accordance with the regulations made by the Securities and Exchange
Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance
with such rules as may be prescribed.
(2) The rights, limitations, restrictions and provisions as are for the time being applicable to equity
shares shall be applicable to the sweat equity shares issued under this section and the holders of
such shares shall rank pari passu with other equity shareholders.
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COMPANY(PROSPECTUS &
ALLOTMENT OF SECURITIES)
RULES, 2014
Rule 8 – Sweat Equity Shares
(1) A company other than a listed company, which is not required to comply with the Securities and Exchange Board of India
Regulations on sweat equity, shall not issue sweat equity shares to its directors or employees at a discount or for consideration
other than cash, for their providing know-how or making available rights in the nature of intellectual property rights or value
additions, by whatever name called, unless the issue is authorised by a special resolution passed by the company in general
meeting.
(3) The special resolution authorising the issue of sweat equity shares shall be valid for making the allotment within a period of
not more than twelve months from the date of passing of the special resolution.
(4) The company shall not issue sweat equity shares for more than fifteen percent of the existing paid up equity share capital in a
year or shares of the issue value of rupees five crores, whichever is higher:
Provided that the issuance of sweat equity shares in the Company shall not exceed twenty five percent, of the paid up equity
capital of the Company at any time.
(6) The sweat equity shares to be issued shall be valued at a price determined by a registered valuer as the fair price giving
justification for such valuation.
(7) The valuation of intellectual property rights or of know how or value additions for which sweat equity shares are to be issued,
shall be carried out by a registered valuer, who shall provide a proper report addressed to the Board of directors with justification
for such valuation.
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SOME QUESTIONS – SWEAT
EQUITY
1. Why issued?

2. What is the Offer Price? Issued at a Discount?

3. Does it Affect the Market Price of Share?

4. From when can the employee enjoy the rights of a shareholder?

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Thank You!

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