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Share issue before receiving consideration

Akaash (Student) (34 Points)

22 April 2010

Ours is a limited company. Our auditor by error has issued more shares than the consideration amount received to one of the directors. It is a closely held company, hence payment is not as issue.

My query is can a company issue shares before receiving consideration in any of the following cases

1. A back dated cheque which has not been encashed by the company

2. An undertaking from the director for payment of the consideration amount before a fixed date

If there is some other method to clear such a transaction, kindly inform me on the same.

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10 Replies

CS Mayur Buha (Company Secretary) (238 Points)
Replied 22 April 2010

can u tell me that what times have been gone from the date of issue of shares?

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 22 April 2010

As far as ROC is concerned there is no problem coz their is no process to trace the amount of allotment from ROC.

However for correct accounting treatment--- amount should be collected from the director concerned as early as possible.

Revert if there is any doubt.

Neeta (Finance) (345 Points)
Replied 22 April 2010

akash , as far i understand from your query , your company has made allotment to the director on private placement .

Now , Receiving consideration has nothing to do with issue . You can issue shares and later receive the amount as per your call process.

Here , Check if form 2 has been filed . and issue shown in it , the actual one or that by the auditor ????

If your director is willing to take the extra issue shown , then ders no probs , u can later receive the consideration. Receiving consideration is not a bar for share issue.

other views please !!!

Akaash (Student) (34 Points)
Replied 22 April 2010

Form 2 has been filed and therefore shares have been issued to the directors.

Now the problem is that the bank accounts of the company show no such transaction of receiving the amount/ consideration for the shares.

Can it become a problem later with the tax authorities to the company or the director? and how to sort out this situation..

Neeta (Finance) (345 Points)
Replied 23 April 2010

ok, so the form2 has been filed with the increased vol of shares to director.

then , as said ny Ankur sir,as far ROC is concerned there no prob coz ders no procedural or requirement in ROC to trace the amount of allotment. so ur are on safer side as far ROC.

as said earlier receiving amount on allotment can be before or after allotment as the company decides. Receiving amount later after allotment thru bank channels is no wrong as far accounting treatment or ROC matter is concerned.

the accounting process goes like : here , u made the allotment ( no amount in bank ) ;after, u make call on shares den u recieve amount in the bank account and at that point u show the entry in your books as received amount. If u don't receive the amount after call its shown as Calls in Arrears . So whats wrong u expect as far tax authorities or the director . i don't find any wrong in it.

other views !!!

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 23 April 2010

Originally posted by : Akaash
	Form 2 has been filed and therefore shares have been issued to the directors. Now the problem is that the bank accounts of the company show no such transaction of receiving the amount/ consideration for the shares. Can it become a problem later with the tax authorities to the company or the director? and how to sort out this situation..

Don't repeat the problem again and again. Simply collect the amount from director and deposit the same into the bank account of the company. Don't take tension buddy.

Regards

(Guest)

From the next time, Keep in mind that,

In any case No shares can be issued without reciveing the Consideration in Part or in toto.

Because, Share application money has to be deposited with the Company for the allotment of the Shares.

And Share is not the Grain/Vegatable or other thing that you can purchase the same on the Credit baisis.

Answer to ur Problem.

No need for taking the Back dated Cheque.

Make the Cash entry for the Transaction.

Moreover, If u will see there is a Column in the Form 2, about the amount recived for the share allotment.

So, Make the entry for that amount, which have been shown in the Form 2.

-------------------------------------------

If you need further clarification than contact me

CS Ankur Shah (Practicing Company Secretary)

“Guru Gautam” Bungalow, Inside Parshwa Tower,

Nr. Shyamal Cross Road, 132ft. Ring Road,

Satellite, Ahmedabad – 15

Contact: + 91-9427633901

E-mail: ankur @ csankur.com, ankurjewel @ gmail.com

Blog: csankur.blogspot.com

Website: www.csankur.com

Akaash (Student) (34 Points)
Replied 26 April 2010

@ ankur shah

i cannot receive more than 20000 in cash as share application money. it is against the income tax rules and under section 269, any deposit > 20000 has to be through cheque, else there is a penalty levied on it.

and share application money is taken as a deposit as per a supreme court judgement on a similar issue..

my concern is, that the allotment has been done ( form 2 has been filed), now how to minimize any damages in case the books are scrutinized..

Avika, ACS (HR Legal and Management Consultant) (172 Points)
Replied 26 April 2010

as far as i know, the provisions relating to preferential allotment state that the consideration for the shares need to be paid in advance i.e. before the allotment of shares.

it would be better if you take a back-dated cheque from the concerned Director, if possible.