Issue of shares at Discount & Recent Amendments

Provisions related to issue of shares at discount are contained in section 53 of Companies Act, 2013. As per the provisions of said section, a company is not allowed to issue shares at discount.

As per the provisions contained in the section, any shares which are issued by acompany at a discounted price shall be void.

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However, there are certain exceptions to the above said provision which are enlisted here under:

1. Issue of sweat equity shares

As per section 2(88) of the Companies Act, 2013, sweat equity shares are the shares 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.

And a company shall be allowed to make issue of such shares at a discount.

Reason why issue of sweat equity shares is allowed to be done at discount?

The simple reason for this is that, these shares are in the form of reward to directors, employees. And there shall be no reward if shares are not issued at a discount to them, therefore, the Companies Act, 2013 has permitted the issue of sweat equity shares at a discount.

2. Issue of shares at a discount by a company to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.

This sub-section was inserted by the Companies Act, 2013 by the Companies Amendment Act, 2017 which was made effective from 09th February, 2018.

By this amendment, an opportunity is given to the creditors for conversion of their debt in into equity shares at a discount under any statutory resolution plan as in the case of Insolvency & Bankruptcy Code, 2016 or any other debt restructuring scheme. This has reduced the hardships of insolvent entities and they can revive their entities in an easy manner.

Penalty for non-compliance of Section 53

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This content is meant for information only and should not be considered as an advice or legal  opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates

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