Share subscription amount

Dear Friends

1 Co was incorporated in may 2011, with 3 subscribers, 2 being PROI.

As they were PROI, Company need to do reporting under FEMA whenever they pay for their portion of share subscripttion.

Now when co filed its FCGPR, the CA Valuation Certificate for shares value was also filed.

It mentioned the valuation (as per DCF method) as Rs 16. Now bank says that FEMA MASTER CIRCULAR on FDI says that the shares cant be issued below share valuation done by CA.

But my question to them was, as this is initial subscripttion, we cant give the shares @ value more than face value. IN SIMPLE WORDS WE CANT ISSUE INITIAL SUBSCRIPTION AT PREMIUM.

Their stand is still same, that shares cant be issued at price lower then CA valuation.

Kindly guide me, whether BANK is proper ? And if yes, then what to do now ?

Hello,

You have to work out DCF valuation in such a way that you get the share value either at face value or at below par. Then you can allot shares at par.

I think , your CA has made great projections for the future period and hence share value arrived at

Rs 17/= per share as it is too high for a new company.

Also look up RBI -A.P.(Dir cicular) 49 dated 4/May/10 However it does not provide anything more.

Generally DCF valuation requires-
1. 5 to 10 yr financial projections and cash flow
2. R(f)
3.Beta of closet comparable listed peer.
4.Book value computation from last audited accounts.

There is no condition that share issue has to be valued at a premium only it may be at par or even below par( if the valuation justifies the same).

You may work out fresh projection so that share valuation has been arrived at par by citing a valid reason and since the company is a newly incorporated company.

R.V.Seckar
Mobile- 09848915177

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