Issue of Shares
Raise Capital & Expand Ownership Seamlessly
The issue of shares is a critical process for companies looking to raise capital, reward employees, and expand ownership. Tax Pal Solutions provides end-to-end guidance—from legal drafting to ROC compliance—ensuring a smooth and transparent share issuance process.
Key Benefits of Share Issuance
- Online Process for seamless share issuance and allotment
- Expert Drafting of resolutions and share certificates
- ROC Compliance with PAS-3 & MGT-14 filings
- Fast Capital Raising and investor onboarding
- Complete Support for private limited companies
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Overview
The issue of shares allows a company to raise funds by offering ownership units (shares) to investors. Shares represent claims on the company’s assets and profits. Companies can issue shares publicly or privately, and each type has unique rights and financial implications.
Why Companies Issue Shares
- Raising Capital: Finance expansion, acquire assets, or repay debt.
- Funding Growth: Enable scaling operations or launching new products.
- Improving Financial Standing: Enhance debt-to-equity ratios.
- Rewarding Employees: Incentivize staff via ESOPs.
- Acquisitions: Use shares as consideration in business acquisitions.
Types of Shares in India
| Feature | Equity Shares | Preference Shares |
|---|---|---|
| Ownership Rights | Voting rights; ownership control | Typically no voting rights |
| Dividend | Variable, paid after preference shares | Fixed dividend paid first |
| Risk Level | High risk; last in liquidation | Lower risk; priority in repayment |
| Priority in Repayment | Last in case of liquidation | Priority over equity |
| Management Control | Decision-making power | Usually none |
| Convertibility | Convertible if specified | Can be convertible into equity |
| Suitable For | Investors seeking growth | Investors seeking fixed returns |
Methods of Issuing Shares
1. Public Issue (IPO/FPO)
- IPO: Initial public offering of shares to the general public.
- FPO: Further public offering for listed companies.
2. Private Placement
- Offer shares to a limited group of identified persons (max 200 per financial year).
- Faster and less regulated than public issues.
3. Rights Issue
- Existing shareholders can buy additional shares at a discount.
- Helps maintain ownership proportion and encourages shareholder loyalty.
4. Bonus Issue
- Distribute additional shares from company reserves.
- Enhances share liquidity and rewards existing shareholders.
Rights Issue vs Bonus Issue
| Feature | Rights Issue | Bonus Shares |
|---|---|---|
| Definition | New shares at discounted price | Free shares from reserves |
| Consideration | Payment required | No payment required |
| Purpose | Raise capital | Convert profits to share capital |
| Ownership Impact | Maintains proportion | Unchanged |
| Regulatory Requirement | Letter of Offer & SEBI compliance | Board & shareholder approval |
Private Placement Rules
- Maximum 200 identified persons per financial year
- Requires board & shareholder approval
- No public advertisement allowed
- Application money must be banked separately
- Return of allotment filed via Form PAS-3
Sweat Equity Shares
- Shares issued to employees or directors for non-monetary contribution.
- Recognizes value-added services or intellectual property.
- Subject to regulatory limits and 3-year lock-in period.
Employee Stock Option Plan (ESOP)
- Employees granted the option to buy shares at a predetermined price.
- Helps align employee interests with company growth.
Steps to Implement ESOP:
| Step | Description |
|---|---|
| 1 | Board approval of draft ESOP |
| 2 | Draft ESOP policy |
| 3 | Shareholder approval via special resolution |
| 4 | Amend AoA if required |
| 5 | Share valuation |
| 6 | Grant options to eligible employees |
| 7 | Vesting and exercise period |
| 8 | Allotment & ROC filing (PAS-3) |
| 9 | Maintain ESOP register |
Compliance Checklist
- Companies Act, 2013: Sections 42, 54, 62, 63
- SEBI regulations for listed companies
- Board and shareholder resolutions
- Filing PAS-3 & MGT-14
- Share certificate issuance and dematerialization
Common Risks
- Regulatory Non-Compliance: Missed filings or improper conduct
- Pricing & Valuation: Over/underpricing shares
- Documentation Errors: Incomplete forms or missing approvals
- Skill Shortage: Lack of expertise in legal and financial processes
Share Allotment Certificate
A Share Allotment Certificate is an official proof of ownership issued after ROC compliance.
- Contains shareholder name, number of shares, face value, and certificate number
- Can be downloaded digitally after PAS-3 approval
How to Check Allotment Status:
- Visit MCA portal
- Go to View Public Documents
- Enter company CIN
- Check PAS-3 filing and share allotment details
Certification
