First issue of shares by a public limited company

Time when right issue conditions will not apply

Up to two years from the public limited company registration, it may issue shares privately subject to the conditions that all such private issues may be completed within a period of one year from the date of first allotment of shares by the company. It shall be ensured that no private issue of shares shall be made after expiry of one year from the first allotment of shares in the company after its registration or after two years after its incorporation unless it complies with section 81(1).

Statement in lieu of prospectus to be filed before first allotment immediately after form nation.

Immediately after a company is formed, where a public limited company finds that it will take time to issue a prospectus. It cannot issue its shares unless the company files with the registrar of companies a statement in lieu of prospectus at least three days before such allotment.

Simultaneously action may be taken to obtain commencement certificate

It is the established practice with the companies to file with the registrar along with the statement in lieu of prospectus.

Grant of certificate by the registrar

On receipt of the statement in lieu of prospectus and the declaration, the registrar shall grant a registration certificate to the company certifying that the company is entitled to commence business and exercise borrowing powers.

Private Limited Company exempted

The provisions of sections 70 and 149 do not apply to a private limited company.

Allotment of shares/debentures

After the first allotment of shares in a company registration can be made only after the company has filed the statement in lieu of prospectus with the registrar in terms of section 70. This is not applicable to a private limited company.
Simultaneously with filing the statement in lieu of prospectus, the company should file the declaration with the registrar and obtain the certificate to commence business. This has been covered in an earlier chapter.
Further issue and allotment of shares by a public limited company after one year of first allotment or two years after registration, whichever is earlier, it can be made only in conformity with the provisions of section 81 of the companies act and in the case of a listed company also by complying with the provisions of SEBI guidelines, 2000.

Minimum subscription

Where a public limited company has issued a prospectus inviting the public to subscribe for its shares, the prospectus contain the minimum amount which must be raised by the issue of shares. In practice the term ‘minimum subscription’ is taken to mean as the amount required to meet expenditure for purchase of assets and for meeting other expenses for the company. Minimum subscription is the total amount which the company is expected to receive along with the applications in case the issue is fully subscribed or the amount received with the applications and the accepted developments in case the issue is under-subscribed.

Time by which minimum subscription to be received

Pursuant to section 69(5), the company shall receive application for shares in respect of the minimum subscription before the expiry of 120 days after the issue of the prospectus.

Preconditions before allotment

Summarizing, in a public issue, no allotment of the shares can be made until the conditions are compiled with:

The application money received with applications for shares should not be for less than the number of shares corresponding to the minimum subscription and this shall be complied within 120 days after the issue of prospectus.

If the company has complied with the above condition, before making the allotment the company shall company to and obtain the certificate to commence business from the ROC.

In a first public issue of a company, it is mandatory for the company to obtain the permission from the stock exchange or from all the stock exchanges

Non-compliance of the above conditions

Where in a public issue applications relevant to the minimum subscription are not received within 120 days from the date of issue of the prospectus.

First issue of SEBI’s Guidelines

For failure to repay the amount in the two circumstances mentioned above, the company is required to repay the money with interest at the uniform rate of 15% per annum for the delay in repayment.

Same conditions for public issue of debentures except minimum subscription

The conditions stated above will all apply to the issue of debentures by prospectus, except that the requirements of minimum subscription and certificate to commence business shall not apply to public issue of debentures.

Minimum application amount

In terms of section 69(3), the amount payable with application on each share shall not be less than 5% of the nominal value of the share.

Amount payable on shares

The amount payable in respect of the nominal value of each share and premium, if any, is made payable with application and allotment and balance. If any, in one or more installments called calls. It is generally seen these days that the whole nominal amount and the premium, is made payable with application and allotment.

Method of making a call

The method of making a call is contained in the AoA. The call is made by issue of notice on every shareholder stating the amount of call, the date by which it is to be paid and the bank through which it is payable.

Nature of call and Limitation

The liability to pay money due on a share becomes a debt only when a call is made in terms of the AoA of the company.

Calls on shares of same class on uniform basis

In terms of section 91, calls made on shares of same class shall be on uniform basis. It is stated under explanation that shares of the same nominal value on which different amounts have been paid-up. It shall not be deemed to fall under the same class.

Power to company to accept share capital not called up

Where authorized by the articles a company may accept from any member the whole or part of the amount uncalled and unpaid amount. But such a member cannot exercise voting power in respect of the money so paid until the same becomes payable by all shareholders.

Allotment Procedure

Allotment of shares shall be made by the board or by a committee of the board appointed for the purpose. Allotment in a public issue shall be made after the stock exchange concerned or all the stock exchanges concerned have granted the listing permission as per section 73 of the act and within the time limit prescribed by SEBI.

Nature of call and Limitation

The liability to pay money due on a share becomes a debt only when a call is made in terms of the AoA registration of the company. The company registered office may be located in Chennai.

Calls on shares of same class on uniform basis

Power of company to accept share capital not called up

Where authorized by the articles a company may accept from any member the whole or part of the amount uncalled and unpaid amount.