CS EXECUTIVE CS DHEERAJ TYAGI

 Declaration to the effect that no dividend /bonus shares:-The Board of directors shall
give a declaration to the effect that no portion of the income of the company
transferred directly or indirectly by way of dividend or bonus.
 No objection certificate from relevant authorities, in case of special status
 No failure in filing financial statements/Annual Return
 Attach certificate of compliance obtain from PCS for conversion
 Company to give up concessions enjoyed or being enjoyed

On receipt of Approval of Regional Director, company shall file R.D approval copy to ROC in
inc-20 within 30 days

CONVERSION OF ONE PERSON COMPANY TO PRIVATE COMPANY/PUBLIC COMPANY

One Person company to convert itself into a public company or a private in certain cases
(Rule 6)
1. Where the paid up share capital of an Person Company exceeds fifty lakh rupees or its
average annual turnover during the relevant period exceeds two crore rupees, it shall
case to be entitled to a continue as a One Person Company.

2. Such one Person Company shall be required to convert itself, within six months of the
date on which its paid up share capital is increased beyond fifty lakh rupees or the
relevant period during which its average turnover exceeds two crore rupees as the case
may be into either a private company with minimum of two members and two
directors.

3. The One Person Company shall within period of sixty days from the date of the
applicability of sub-rule (1) give a notice to the Registrar in Form No, INC-5 informing
that it has ceased in be a one Person Company.

PRIVATE COMPANY INTO ONE PERSON COMPANY RULE-7

1. A private company other than NPO registered under section 8 of the Act having paid up
share capital of fifty lakhs rupees or less or average annual turnover during the passing
a special resolution in the general meeting.

2. Before passing such resolution, the company shall obtain No objection in writing from
the members and creditors.

3. The one Person company shall file copy of the special resolution with the Registrar of
Companies within thirty days from the days from the date of the passing such resolution
in Form No MGT, 14

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4. The Company shall file an application in Form [Link],6 for its conversation into one
person company along with fees as provided in the companies (Registration offices and
fees ) Rules, 2014 by attaching the following documents namely:-

 The directors of the company shall give a declaration by the way of affidavit duly
sworn in confirming that all members and creditors of the company have given
their consent for conversion, the paid up share capital company is fifty lakhs
rupees or less or average annual turnover is less than two crores rupees, as the
case may be
 The list of members and list of creditors
 The latest Audited Balance Sheet and the profit and loss Account and
 The copy of No Objection letter of secured creditors.

5. Or being satisfied and complied with requirements stated herein the registrar shall issue
the certificate.

6. Penalty: If a One Person Company (OPC) or any officers of such company contrivances
any of the provisions of these rules, the OPC or any other officers of such company shall
be punishable with fine which may extend to Rs. 5000 and with a further fine which may
extend to 500 per day after first offence, during which such contravention continues.

Conversion of companies in chart form

PRIVATE PUBLIC CONVERSI CONVERSIO CONVERSI CONVERSION
COMPANY TO ON OF N OF ONE ON OF PVT OF PRIVATE
TO PUBLIC PRIVATE SECTION 8 PERSON COMPANY COMPANY
COMPANY COMPANY COMPANY COMPANY INTO ONE INTO ONE
TO ANY TO A PERSON PERSON
OTHER PUBLIC COMPANY COMPANY
KIND COMPANY
OR PRIVATE
COMPANY
Pass special Pass Special -Pass special OPC may Private Private
Resolution n Resolution in Resolution convert itself company company
in general in general voluntarily other than other than
General meeting. File meeting only after two section 8 section 8
meeting form INC-27 along with years have Company company
File form INC With MGT 14 expired from having paid having paid
27 With Registrar. -Application the date of up share up share
Registrar File Get NCLT’s to Regional incorporation capital of capital of
MGT. 14 for Approval. File Director in of such OPC. rs. 50,00,000 rs.50,00,000

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Special MGT. 14 for Form INC. 18 It cannot or or less ,or

resolution Special (copy to be convert itself less, or Average
resolution. filed with voluntarily Average Annual
Registrar) into a section annual turnover
Publication of 8 company. It turnover during the
notice ( INC. has to during the relevant
19 ) in news compulsorily relevant period is rs.2
paper convert itself period is rs.2 crore or less
-Declaration in case if the crore or less -Before
to the effect paid up may convert passing
that no capital of an to an OPC resolution the
dividend/ OPC exceeds -Before company
bonus is paid Rs.50 lacs Or passing shall
-NOC from -Its average resolution the obtain NOC
the relevant annual company from
regulatory turnover shall members &
authority during the obtain NOC creditors then
-No failure in relevant from pass S/R in
filing financial period members & General
Statement exceeds rs.2 creditors then meeting
certificate crore. In such pass S/R in -The
from a General company
PCS/CA/CW A situation it meeting shall file an
for shall cease to -The application in
conversion be company INC 6 for its
compliance entitled to shall file an Conversion
continue as application in -Declaration
OPC INC 6 for its by Directors
-Minimum Conversion by way of
numbers of -Declaration affidavit
members and by
directors has Directors by
to be way of
increased affidavit

CONCEPT OF CAPITAL AND FINANCING AND COMPANIES

MEANING OF THE TERM “CAPITAL”

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The term “Capital” has variety of meanings. The phrase “loan or borrowed capital” is
sometimes used to mean money borrowed by the company and secured by issuing debentures.
This, however, is not the proper use of the word “capital”. In relation to a company limited by
shares, the word “capital” means the share capital.

USE OF THE WORD “CAPITAL” IN DIFFERENT SENSES

In Company Law, the “Capital” is the share capital of a company, which is classified as:

 Nominal, Authorised or Registered Capital: As per section 2(8), “authorised capital” or

“nominal capital” means such capital as is authorised by the memorandum of a
company to be the maximum amount of share capital of the company.
 Issued Capital: As per section 2(50), “issued capital” means such capital as the company
issues from time to time for subscription.
 Subscribed Capital: According to Section 2(86), “subscribed capital” means such part of
the capital which is for the time being subscribed by the members of a company.
 Called up Capital: As per section 2(15), “called-up capital” means such part of the
capital, which has been called for payment. It is that portion of the subscribed capital
which has been called up or demanded on the shares by the company.
 Paid-up Share Capital: As per section 2(64), “paid-up share capital” or “share capital
paid-up” means such aggregate amount of money credited as paid-up as is equivalent
to the amount received as paid-up in respect of shares issued.
 Preference and Equity Share Capital: As per explanation to Section 43.

MEANING AND NATURE OF A SHARE

Section 2(84) of the Act defines a share as “a share in the share capital of a company, and
includes stock except where a distinction between stock and shares is expressed or implied.

KINDS OF SHARES

Section 43 of the Companies Act, 2013 permits a company limited by shares to issue two
classes of shares, namely:
1. Equity share capital—
a) with voting rights; or
b) with differential rights as to dividend, voting
c) Preference Share Capital.

CAPITAL SHALL BE DEEMED TO BE PREFERENCE CAPITAL-WHEN?

Explanation to Section 43 states that the Capital shall be deemed to be preference capital,

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a) That in respect of dividends, in addition to the preferential rights to the amounts it has a
right to participate, whether fully or to a limited extent, with capital not entitled to the
preferential right aforesaid.
b) That in respect of capital, in addition to the preferential right to the repayment, it has a
right to participate, whether fully or to a limited extent, with capital not entitled to that
preferential right in any surplus which may remain after the entire capital has been
repaid.

PREFERENCE SHARES COMPARED WITH EQUITY SHARES

S. NO. PREFERENCE CAPITAL EQUITY SHARE CAPITAL

1. Preference shares are entitled to a fixed The rate of dividend on equity shares
rate of dividend. depends upon the amount of profit
available and the funds requirements of
the company for future expansion etc.

2. Dividend on the preference shares is The dividend on equity shares is paid only
paid in preference to the equity shares. after the preference dividend has been
paid.
3. In case of winding up, preference share In case of winding up, equity share holder
holder get preference over equity share get payment of capital after the payment
holders with regard to the payment of of capital to preference shareholders.
capital.
4. Dividend on preference share may be The dividend on equity shares is paid only
Cumulative. after the preference dividend has been
paid and it is not cumulative.
5. No bonus shares/right shares are issued A company may issue rights shares or
to preference shareholders. bonus shares to the company’s existing
equity shareholders.

ISSUE OF SECURITIES AT A PREMIUM

A company may issue securities at a premium when it is able to sell them at a price above par
or above nominal value.
The Companies Act, 2013, does not stipulate any conditions or restrictions regulating the issue
of securities by a company at a premium. However, the Companies Act does impose conditions
regulating the utilization of the amount of premium collected on securities.

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SHARE PREMIUM TO BE TRANSFERRED TO ‘SECURITIES PREMIUM ACCOUNT’

Section 52 (1) states that when a company issues shares at a premium, whether for cash or
otherwise, a sum equal to the aggregate amount of the premium received on those shares shall
be transferred to a “securities premium account” the securities premium account will be
treated as paid up share capital of the company.

UTILISATION OF SECURITIES PREMIUM

Section 52(2) of the Act, the securities premium can be utilised only for:
 issuing fully paid bonus shares to members.
 Writing off the balance of the preliminary expenses of the company.
 Writing off commission paid or discount allowed.
 For providing for the premium payable on redemption of any redeemable preference
shares or
 For the purchase of its own shares.

ACCOUNTING TREATMENT OF S.P.A/C

 SP A/C will only treated as share capital of company

 SP a/c can’t be treated as profit of company and will not be available for distribution of
dividend.
 A separate account must be created.
 SP will not be termed as free reserve.
 If SP is available in consideration other than cash than a sum equal to the value should
be transferred to SP a/c.

PROHIBITION TO ISSUE THE SHARES AT DISCOUNT

Section 53 states that except as provided in section 54(i.e issue of sweat equity shares), a
company shall not issue shares at a discount. Any share issued by a company at a discounted
price shall be void.
When a company contravenes the provisions of this section, the company shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees
and every officer who is in default shall be punishable with imprisonment for a term which may
extend to six months or with fine which shall notbe less than one lakh rupees but which may
extend to five lakh rupees, or with both.

ISSUE OF SWEAT EQUITY SHARES

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According to section 2(88), sweat equity shares mean equity shares issued by a company to its
directors or employees at a discount or for consideration, other than cash for providing know-
how or making available rights in the nature of intellectual property rights.

Rule 8(1) of Companies (Share Capital and Debentures) Rules, 2014.

1. The expressions ‘‘Employee’’ means-

a) A permanent employee of the company who has been working in India or outside India,
for at least last one year; or
b) A director of the company, whether a whole time director or not; or
c) An employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in
India or outside India, or of a holding company of the company;
2. The expression ‘Value additions’ means actual or anticipated economic benefits derived or
to be derived by the company from an expert or a professional for providing know-how or
making available rights in the nature of intellectual property rights, by such person to whom
sweat equity is being issued for which the consideration is not paid.

Validity of Special Resolution authorizing sweat equity shares

Rule 8(3) the special resolution authorizing 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.

Limits on issue of sweat equity shares

Rule 8(4) states that 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. 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.

Sweat Equity Shares to be locked for three years

The sweat equity shares issued to directors or employees shall be locked in/non
transferable for a period of three years from the date of allotment.

Sweat equity shares forming part of managerial remuneration

Rule 8(10) states that the amount of sweat equity shares issued shall be treated as part of
managerial remuneration for the purposes of sections 197 and 198 of the Act, if the following
conditions are fulfilled, namely.-
a) The sweat equity shares are issued to any director or manager.
b) They are issued for consideration other than cash.

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Board’s Report to disclose the details of sweat equity shares

Rule 8(13) states that the Board of Directors disclose in the Directors’ Report for the year in
which such shares are issued:
a) The class of director or employee to whom sweat equity shares were issued.
b) The class of shares issued as Sweat Equity Shares.
c) The number of sweat equity shares issued to the directors, key managerial personnel
d) The reasons or justification for the issue.
e) The percentage of the sweat equity shares of the total post issued and paid up share
capital.

CONDITIONS FOR ISSUE OF SWEAT EQUITY SHARES

Section 54(1) a company can issue sweat equity shares, if the following conditions are satisfied:

a) The issue has been authorised by a special resolution passed by the company in the
general meeting.
b) The following are clearly specified in the resolution:
(i) Number of shares.
(ii) Current market price.
(iii) Consideration, if any.
(iv) Class or classes of directors or employees to whom such equity shares are to be
issued.
c) As on the date of issue, at least one year should have elapsed from the date on which
the company had commenced business.
d) A company whose shares are listed on a recognized stock exchange issuing sweat
equity shares should comply with the regulations made in this behalf by SEBI.
e) A company whose shares are not so listed should issue sweat equity shares in
compliance with the rules made in this behalf by the Central Government.

MAINTENANCE OF REGISTER

The company shall maintain a Register of Sweat Equity Shares in Form No. SH.3. The Register of
Sweat Equity Shares shall be maintained at the registered office of the company or such other
place as the Board may decide.

Issue of Sweat Equity Shares

 Issue of Sweat equity shares to be authorized by special resolution at a general meeting.

 Explanatory statement to the special resolution to contain certain particulars.
 The special resolution authorizing Sweat equity shares is not valid if the allotment is

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made after 12 months of passing the resolution, i.e. the validity of special resolution is
12 months.
 Issue of Sweat Equity shares not to exceed 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 and twenty five percent, of the paid up equity capital of the Company at any
time.
 The price of Sweat Equity shares is to be determined by a registered valuer.
 Board’s Report to contain certain specified details of sweat equity shares issued.
 The company shall maintain a Register of Sweat Equity Shares in Form No. SH.3
 Issue of Sweat Equity shares to employees and directors at a discount under section 54
is outside the scope of section 53.

SHARES WITH DIFFERENTIAL VOTING RIGHTS

While Section 43 enables companies to issue a variety of equity shares with differential rights

Conditions for issuing shares with differential rights:-(Rule 4) Companies (Share Capital and
Debentures) Rules, 2014

No company limited by shares shall issue equity shares with differential rights as to dividend,
voting with the following conditions:

(i) The articles of association of the company authorizes the issue of shares with
differential rights.
(ii) The issue of shares is authorized by an ordinary resolution passed at a general meeting
of the shareholders: When the equity shares of a company are listed on a recognized
stock exchange, the issue of such shares shall be approved by the shareholders through
postal ballot.
(iii) The shares with differential rights shall not exceed twenty-six percent of the total post-
issue paid up equity share capital including equity shares with differential rights issued
at any point of time.

(iv) The company having consistent track record of distributable profits for the last three
years.
(v) The company has not defaulted in filing financial statements and annual returns for
three financial years immediately preceding the financial year.
(vi) The company has not been penalized by Court or Tribunal during the last three years of
any offence under the Reserve Bank of India Act, 1934 , the Securities and Exchange
Board of India Act, 1992,

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Rule 4(3) states that he company shall not convert its existing equity share capital
with voting rights into equity share capital carrying differential voting rights and vice
versa.

Disclosures in the Boards’ Report

Rule 4(4) states that the Board of Directors disclose in the Board’s Report for the financial year.

a) The total number of shares allotted with differential rights;

b) The details of the differential rights relating to voting rights and dividends;
c) The price at which such shares have been issued;

issue of shares with differential voting rights.

 Articles of association to authorise the issue

 An ordinary resolution is to be passed at a general meeting of the shareholders. If listed,
approval by shareholders through postal ballot is required.
 It shall not exceed twenty-six percent of the total post-issue paid up equity share capital
including equity shares with differential rights issued at any point of time;
 consistent track record of distributable profits for the last three years;
 No default in filing financial statements and annual returns for the last three financial
years
 no subsisting default in the payment of a declared dividend or repayment of its matured
deposits or redemption of its preference shares or debentures that have become due
 No default in repayment of any term loan from a public financial institution or State
level financial institution or scheduled Bank that has become repayable or interest
payable thereon or dues with respect to statutory payments relating to its employees to
any authority or default in crediting the amount in Investor Education and Protection
Fund to the Central Government;
 Not to be penalized by Court or Tribunal during the last three years of any offence under
specified legislations.
 Details of the issue to be disclosed in the Board’s Report
 Register of Members to contain the details of shares with differential voting rights.

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ISSUE AND REDEMPTION OF PREFERENCE

SHARES
COMPANY CANNOT ISSUE IRREDEEMABLE PREFERENCE SHARES OR REDEEMABLE
PREFERENCE SHARES WITH THE REDEMPTION PERIOD BEYOND 20 YEARS

Section 55(1) states that no company limited by shares shall issue any preference shares which
are irredeemable.
Section 55(2) further states that a company limited by shares may, if so authorised by its
articles, issue preference shares which are liable to be redeemed within a period not exceeding
twenty years from the date of their issue subject to such conditions as may be prescribed.

Section 55 (3) when a company is not in a position to redeem any preference shares with the
terms of issue it may, with the consent of the holders of three-fourths in value of such
preference shares and with the approval of the Tribunal on a petition made by it in this behalf,
issue further redeemable preference shares equal to the amount due.

It is hereby declared that the issue of further redeemable preference shares or the redemption
of preference shares under this section shall not be deemed to be an increase or, as the case
may be, a reduction, in the share capital of the company.

EXCEPTIONS

Rule 10 states that a company engaged in the setting up and dealing with of infrastructural
projects may issue preference shares for a period exceeding twenty years but not exceeding
thirty years, subject to the redemption of a minimum ten percent of such preference shares per
year from the twenty first year onwards or earlier, on proportionate basis, at the option of the
preference shareholders.

PRESCRIPTIONS UNDER COMPANIES (SHARE CAPITAL AND DEBENTURES) RULES, 2014 WITH
REGARD TO ISSUE AND REDEMPTION OF PREFERENCE SHARES

Conditions

Rule 9(1) states that a company having a share capital may, if so authorised by its articles.
(a) The issue of such shares has been authorized by passing a special resolution
(b) The company, at the time of such issue of preference shares, has no subsisting default in
the redemption of preference shares

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