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Issue of shares

sahana Murthy (Student) (123 Points)

19 January 2011

Hi all

I have a question to ask. When a new company is incorporated, is it mandatory that shares subscribed throgh MOA be realized in cash only.

Kindly reply.

Thanks & regards

Sahana Murthy

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9 Replies

ankit jain (CS trainee) (152 Points)
Replied 19 January 2011

Dear Mr. Murthy,

No, it is not compulsory. You can receive the consideration in any form whether it is in cash or in kind.

Please correct me if i'm wrong

Thanks in advance

Jaideep (Service) (1368 Points)
Replied 19 January 2011

Hi, Sahana

Yes, subcription is to be realised into cash only.

Company is eligible to issue Sweat Equity shares only after one year of its date of commencement of business or date of incorporation. Section 79A.

Hence shares subscribed throgh MOA be realized in cash only.

Regards

Jaideep Pandya

Sudhir Garg (Service) (236 Points)
Replied 19 January 2011

I think Mr Ankit is 100% correct. Subscripttion consideration can be received by either of cash, cheque or any kind.

Mr Jai, I am unable to understand how section 79A (Sweat Equity) is concerned with query asked. please clarify.

Regards- Sudhir

sahana Murthy (Student) (123 Points)
Replied 20 January 2011

The facts are a pvt ltd is formed and the business of a partnership firm is taken over. The subscribers to the MOA are the partners and their contention is that since they are selling a running business to the company they do not want to bring in cash.

Is this valid?

Thanks & regards

Sahana Murthy.

Sudhir Garg (Service) (236 Points)
Replied 20 January 2011

Hi Sahana

There are two modes of taking over the running business.

a) Incorporate company with main object of taking over the running businees. in this case, company is incorporated with PUC of net assets to be taken over and subscribers need not to bring any cash / cheque as their capital in firm (to be takn over) is converted into share capital in their capital ratio.

b) In other mode, company is incorporated and then business is taken over. in this, company need not to have main object to take over the running business. In this case, subscribers need to bring their ratio either in cash, cheque or kind.

Hope it clarifies.

Regards- Sudhir

Jaideep (Service) (1368 Points)
Replied 20 January 2011

Dear Sudhir,

As Shares are being issued for the consideration other than cash, I thought Section 79A will play role over here. Also there is no other provision in the Companies Act, which talks about issue of shares other than cash.

As suggested by you, Subscripttion can be in kind, I need to check and update myself.

Thanks Sudhir

Sudhir Garg (Service) (236 Points)
Replied 20 January 2011

Dear Jai

if we look at the condition part of section 79A of Sweat equity, it is evident that allotment of shares to subscribers is not conceerned with this section in any way. for eg for sweat equity, a) it is of same class of earlier issued shares; b) issue of sweat equity to be authirised by Special resolution; c) one year has been elapsed ......

all of above conditions can not be met out for allotment of shares to subscribers to whom allotment is made on the very first day of incorporation as PUC of every pvt company is required to be Rs 1 lac from the date of inception.

Hope myself is clear.

Regards- sudhir