Issue shares

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11 September 2012 can a private company issue shares on premium in case of losses during the previous year

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 September 2012 Yes a pvt ltd company can issue shares at a premium in case of losses during the previous year. But please be aware of Section 56(2)(viib) of the income tax act.

Budget 2012-13 has a very strong provision for curbing black money practices. One of the easiest way to convert black money to white was through share premium of private limited companies which used to create a company, accepting huge premium on a very small paid up capital and then selling the company at very small price per share. Budget 2012-13 has plugged the loophole in the Income Tax Act .

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 September 2012 The provision u/s Section 56(2)( viib) effective from 01/04/2012 is as under

‘(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:
Provided that this clause shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Explanation.—For the purposes of this clause,—
(a) the fair market value of the shares shall be the value—
(i) as may be determined in accordance with such method as may be prescribed; or
(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer,
based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,
whichever is higher;
(b) “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation 1 to clause (23FB) of section 10;’.

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