GREEN SHOE OPTION
Prospectus involving debentures usually provide for a green shoe option
In the special resolution as well, this option is discussed with the shareholders
‘Green Shoe Co.’ is an American company, now known as Stride Night.
It can be set at 15% maximum.
Supposes there are 100 shares, 20 for promoters and pre-existing shareholders and 80 for
investors. [80+15= 95]
Stabilising agent is appointed who watches the stock market everyday and floats more shares
in the market to meet the cap of 95
[Read up on this]
DEFINITION OF PROSPECTUS
Section 2(70): "prospectus" means any document described or issued as a prospectus and
includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in
section 31 or any notice, circular, advertisement or other document inviting offers from the
public for the subscription or purchase of any securities of a body corporate.
It is an issue to the public. It has strict compliance.
Newspaper advertisements are included in the definition of prospectus.
Section 26- contents of a prospectus
Section 42(4)- invitation to the public
Missing
Section 36- inducing to invest money
Section 38- Punishment for personation for acquisition, etc., of securities.
Missing notes (23,24,25??)
1.10.19
s36: inducing to invest money
s38: fictitious application
- Buy a number of shares and then with a different identity, buy more shares [doing it
yourself and/or inducing others to do it]
Share Capital
3.2.19
A share is a part of the share capital of a country (individual unit into which the share
capital is divided)
Not only dividends, it accrues certain rights and corresponding liabilities (not just about
investment)
Share certificate: The person X son of Y hold A no of shares of Rs. B from the date C.
Agreed to be part of the company, acquisition of shares, free consent basically
- share is transferred, only way you can sell your share.
- Share cert is evidence that you hold these shares and later if you have to prove that
prima facie you have these many shares
- Usually shares have a serial no. The co makes an endeavour to issue a continuous series
of shares
Difference b/w share and stock:
Share Stock
1. can be originally used 1. cannot be originally used
2. Shares may be fully paid up or partially paid 2. Stock is always fully paid up (stock can only
up exist if the shares are fully paid up, it is the
money conversion of shares)
3. Share can only be transferred as a whole 3. Stock can be transferred as a whole
4. 4. Stock bears no such no
[[A co cannot issue only preference and no equity shares]]
Share capital is divided into equity and preference share. Equity: get voting rights in the
co + preference: get preference in payment at the time of dividend and also at the time of
winding up
Can a person be an equity share holder w/o voting rights
- differential voting rights: equity shares can be issued w/o voting rights. Instead of one
share one vote, can make it 10 shares, one vote
- Equity shares can thus be there w/o voting rights (s43).
- Incentive to obtain these shares: higher dividend than other equity share holders
Are preference share holders always devoid of the right to vote:
- It is interest specific. Preference share holders vote on all resolutions that concern them.
- If they haven’t paid dividend for 2 years continuously then they may vote on certain
matters when the co is winding up or on liquidation of the co as part of the general body
of shareholders; so cannot say that they are completely devoid of the right to vote.
If it is distributable profit, the first one to receive div is the preference share holder. But
after they have received dividend, they cannot ask for any more even if the co earns
immense profits in the year. Equity share holders can ask for dividend any no of times in
a year and not just once.
Dividend is given if there is profit,
- Profit is kept as Retained Earnings. Retaining that portion of the profit as they want to
invest in core activity or any diversified ventures.
- And then there is Distributable Profit which is the remaining amount, which is given as
dividend
Suppose no declaration of profit, can the co distribute dividend then: dividend has to be
declared, general protocol and practice that has to be followed
- whether done in board meeting reso or AGM, declaration is reqd and after this you have
to give dividend, it becomes a debt on you so cannot back out. Financial debt so
insolvency will be triggered.
I. KINDS OF PREFERENCE SHARES
1. Cumulative/Non-cumulative preference shares
- Unless expressly mentioned, all preference shares are cumulative
- Suppose in a financial ear, not given dividend. Next year not got. Third year there is
distributable profit
- Holder of cumulative pref shares, in the third year will be entitled to get what you have
not gotten in the previous years + the current year (5% each year so in the final year 15%
of the profits)
- Non cumu: very uncommon, unless the share cert specifically says then they’re by
default cumu shares
2. Redeemable Preference Shares
- After some point of time the co will take the share from you and redeem the money
- All preference shares are redeemable preference shares unless expressly mentioned that
it isn’t
- 20 year period is the period within which the shares have to be redeemed.
- After the co takes back the shares the do not get dividend
- Exception: infrastructure project shares. Redeemable shares for a period of 30 years (so
not redeemable in 20 years). There is a condition that from the first year onwards, 10%
of the preference shares you have to keep redeeming
3. Participating and Non-participating preference shares
- It may be written in the Articles or Terms of issue that if there is a surplus (after payment
to the shareholders), equity shareholders are generally entitled to it. But if anyone has
participating preference share, then he will have a right to the surplus. It entitles you as a
preference shareholder to any percentage of money left as a surplus. It will be divided on
a proportionate basis to the equity and the participating preference shareholders.
5.10.19
I. KINDS OF SHARE CAPITAL
1. Authorised Share Capital
- The amt that they go for issuing
2. Issued Share Capital
3. Subscribed Share Capital
- actual amt subscribed to
4. Unsubscribed
- issued subtracted from subscribed
5. Called up Capital
6. Uncalled capital
7. Paid up capital
- Not all called up capital is paid up capital