A Comprehensive Guide - Procedure for Issue of Equity Share by Private Company

Introduction

Private companies looking to bolster their capital through equity shares can navigate various paths outlined in the Companies Act, 2013. This article breaks down the procedural aspects of three primary methods: Right Issue (Section 62), Bonus Issue (Section 63), and Private Placement (Section 42).

Ways in which A Private Company may issue Equity Share

Private companies can choose from three distinct methods to issue equity shares:

1. Right Issue (Sec. 62)
2. Bonus Issue (Sec. 63)
3. Private Placement (Sec. 42)

These methods provide flexibility, allowing companies to tailor their approach based on specific scenarios and requirements.

Right Issue (Sec. 62)

When a private company with a share capital aims to augment its subscribed capital through additional shares, it can opt for a Right Issue. This involves offering shares to existing shareholders, employees under a stock option scheme, and others authorized by a special resolution.

Procedure:

1. Board Approval: Obtain approval in a Board Meeting.
2. Offer to Shareholders: Prepare an Offer Letter and dispatch it to existing shareholders.
3. Allotment: Pass a Board Resolution for share allotment within 60 days of receiving the funds.
4. Filing: File PAS-3 with the Registrar within 15 days of allotment.
5. Share Certificate: Issue share certificates through another Board Resolution within 2 months of allotment.

Bonus Issue (Sec. 63)

A private company can issue fully paid-up bonus shares to members, utilizing free reserves, securities premium, or capital redemption reserve. Certain conditions, such as approval by Articles, Board recommendation, and compliance with financial obligations, must be met.

Procedure:

1. Board Approval: Pass a Board Resolution in a meeting.
2. General Meeting: Fix the date, time, and venue for a General Meeting and send notices to stakeholders.
3. Special Resolution: Pass a Special Resolution for the bonus issue within 45 days of the General Meeting.
4. Filing: File MGT-14 with the Registrar within 30 days of the General Meeting.
5. Offer to Shareholders: Dispatch an Offer Letter to existing shareholders.
6. Allotment and Filing: Follow steps similar to the Right Issue, including filing PAS-3 within 15 days.

Private Placement (Sec. 42)

Private placement involves offering securities to a select group of persons, identified by the Board and approved in a General Meeting. The process includes filing MGT-14, issuing an Offer Letter, and maintaining detailed records of the private placement.

Procedure:

1. Board Approval: Pass a Board Resolution for private placement.
2. General Meeting: Fix the date, time, and venue for a General Meeting and send notices.
3. Special Resolution: Pass a Special Resolution for private placement within 45 days of the General Meeting.
4. Filing: File MGT-14 with the Registrar within 30 days of the General Meeting.
5. Offer to Identified Persons: Dispatch an Offer Letter to the identified persons.
6. Allotment and Filing: Follow steps similar to the Right Issue, including filing PAS-3 within 15 days.
7. Share Certificate: Issue share certificates and maintain a list of identified persons (PAS-6).

Conclusion

This comprehensive guide offers a step-by-step overview of equity share issuance procedures for private companies. Strict adherence to regulatory requirements outlined in the Companies Act, 2013, is crucial for ensuring a smooth and compliant capital-raising process.