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According to section 208 of the companies act,1956 interest can be paid to the shareholder out of capital where there is long gestation period and subject to the following condition.

1.payment is authorised by the articles or by special resolution of shareholders in general meeting;

2.payment is approved by the central government;

3.it is paid only for the period determined by the central government not exceeding 6 months after the half year in which the PROJECT has been completed;

4.the rate shall not exceed 12% p.a. or such other rate as may be prescribed by the government;

5.the payment of interest shall not operate as a reduction of the amount paid up on the shares in respect of which it is paid.

Explain me please point no.3 & 5.

Thank you everyone whosoever replies me.

Replies (3)

Suraj S

Audit Executive

335 Points Joined July 2010

Originally posted by : pujit
	According to section 208 of the companies act,1956 interest can be paid to the shareholder out of capital where there is long gestation period and subject to the following condition. 1.payment is authorised by the articles or by special resolution of shareholders in general meeting; 2.payment is approved by the central government; 3.it is paid only for the period determined by the central government not exceeding 6 months after the half year in which the PROJECT has been completed; 4.the rate shall not exceed 12% p.a. or such other rate as may be prescribed by the government; 5.the payment of interest shall not operate as a reduction of the amount paid up on the shares in respect of which it is paid. Explain me please point no.3 & 5. Thank you everyone whosoever replies me.

Point 3 says that once the project is completed i.e., such payment of interest is mainly found in construction companies and when the construction is completed such interest cannot be paid for more than 6 months or period specified by Govt. whichever is lower.......

Point 5 says that such interest cannot be paid out of the proceeds of shares issued i.e., such payment will not result in reduction of paid-up capital of the company....

Guest

Thank you for such a nice reply..,,

Pawan Rohilla

Assistant Manager

40 Points Joined June 2012

in case of payment of Interest to the shareholders on capital raised by issue of shares to meet the cost of construction of buiding which can not be made profitable for a long period, will it be added to the cost of Building ? if yes, why ?