Rights issue and bonus issue

Objectives & Agenda :

Companies can use either equity or debt form to raise capital. Equity can be raised by way of rights issue, bonus issue, private placement, public issue, etc. An offer of securities made to the existing shareholders of the Company is a rights issue. Bonus shares may be issued to the members of the Company out of its free reserves, or securities premium account or capital redemption account. The webinar covers the statutory / practical aspects of rights issue and bonus issue, including caveats relating to such issues.

1. Rights issue and bonus issue CS Meenakshi Jayaraman DVS Advisors LLP India-Singapore-London-Dubai-Malaysia-Africa www.dvsca.com

2. Credits and Acknowledgments Sundar Rajan S

3. Legends used in the presentation Act Companies Act, 2013 AOA Articles of Association BOD Board of Directors FMV Fair Market Value IFSC International Financial Services Centre ITA Income Tax Act

4. Presentation Schema

5. Types of issue Fund raising Equity Public issue Debt Rights issue Private placement Bonus issue ESOP Sweat equity

6. Rights issue

7. Provisions under the Act – Section 62 (1) & (2)

8. Contd. *However, exception is granted to private and specified IFSC public Companies ** However, exception is granted to private Companies

9. Exceptions

10. Secretarial Compliance i. For approval of rights issue: * Exempt for private and specified IFSC public Companies. Hence, Form MGT-14 need not be filed

11. ii. For allotment of shares by rights issue (after receiving money from the shareholders): Contd.

12. Caveats Board resolution is sufficient for approval of rights issue. Consent of members in general meeting is not required to be obtained Prior to rights issue, the Company shall ensure that its authorised share capital is more than the post rights issue paid-up capital. If not, the Company shall first alter its share capital and then proceed with rights issue. Form SH-7 to be filed Valuation report is not required to be obtained for issue of shares by rights issue

13. Sample format of documents i. Share application form

14. Contd. ii. Renunciation Form

15. Contd. iii. Renouncee application Form

16. Bonus issue

17. Reserves to be utilised – Section 63(1) *In any case, reserves created by way of revaluation of assets shall not be utilised for issue of bonus shares

18. Conditions to be fulfilled – Section 63 (2) The following conditions have to be fulfilled for issue of bonus shares by the Company: The bonus shares shall not be issued in lieu of dividend

19. Secretarial compliance * Exempt for private and specified IFSC public Companies. Hence, Form MGT-14 need not be filed Shares certificate shall be issued within 2 months from the date of allotment

20. Caveats Bonus shares shall not be issued in lieu of dividend Special resolution is not required to be passed in general meeting of members for approval of bonus issue. Ordinary resolution is sufficient Unlike rights issue, there is no option for renunciation of bonus shares Prior to bonus issue, the Company shall ensure that its authorised share capital can accommodate the post bonus issue paid-up capital. If not, the Company shall first alter its share capital and then proceed with bonus issue. Form SH-7 to be filed

21. Tax implications under ITA

22. Judicial Precedents Vestal Educational Services (P.) Ltd. vs. Lanka Venkata Naga Muralidhar - [2018] 100 taxmann.com 286 (NCL-AT)

23. Thank You DVS Advisors LLP India-Singapore-London-Dubai-Malaysia-Africa www.dvsca.com Copyrights © 2019 DVS Advisors LLP