Issue of shares at face value after issuing it at a premium.

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CA Sameer Valia (Querist)
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11 November 2009 A Public Company, say ABC Ltd, is a closely held company. Originally it has issued shares at the face value of Rs. 10 per share. In the last financial year, it has received Share application money for issue of shares at premium, say at Rs. 100/- (Rs. 10 plus Rs.90 premium).The shares are not yet alloted. Now the Board wants to issue some more shares to it's promoters. Can it issue shares at the original face value of Rs.10/- with the fact that the company has already issued shares at premium earlier?

kindly guide on this matter with citation of Rules and Sections under the Companies Act, if any.

Ankur Garg

Ankur Garg (Expert)
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11 November 2009 Yes you can at any time issue shares at face value. Previous track record does'nt make any difference.

Regards

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CA Sameer Valia

CA Sameer Valia (Querist)
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11 November 2009 Thank you Mr. Garg for your prompt reply.
Though just wanted to confirm a few things :

Will not the ROC ask as to why shares are issued at face value after having issued it at Premium, which effectively means that valuation of shares is already more than the face value? Will this not result in unjust enrichment of the promoters and ROC may raise any objection?

Is there any specific Section / Rule / Clause in Companies Act that confirms this?

Thanks in advance.

Rasesh

Rasesh (Expert)
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22 November 2009 These are more of governance issues and the implications are not limited to company law. Moreover in case of preferential allotment of shares, the Unlisted Public Companies (Preferential Allotment)Rules, 2003 would apply.

The ROC might not raise any query as of now. But the Income Tax Assessing Officer may raise a query. Similarly, when the shares would be sold by the shareholders at a higher price (in the future), they would have to pay huge capital gain tax. If those shareholders who purchased the shares at Rs. 100/- now sell it at Rs. 50/-, would be definitely questioned during their assessment as to how come the value of their investment has gone down so fast.

Finally, as per company law, though you may not have any problem now.

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