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Recap. Allotment of Shares Application for allotment of shares Restrictions as to allotment Repayment as to allotment Effect of irregular allotment Repayment of money received but shares not allotted Return of allotment. Issue of Share and Share Certificate. Shares can be issued….

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recap
Recap
  • Allotment of Shares
  • Application for allotment of shares
  • Restrictions as to allotment
  • Repayment as to allotment
  • Effect of irregular allotment
  • Repayment of money received but shares not allotted
  • Return of allotment
shares can be issued
Shares can be issued….
  • Once a public company has decided to issue further share capital, it has to decide a subscription price.
  • The shares can be issued
    • at par,
    • premium
    • discount.
example
Example
  • The typical par in Pakistan is Rs 10,
    • therefore, a company can issue shares at Rs 10, above Rs 10, or below Rs 10.
  • When its share is selling below par in the market, the issuer would have to consider offering them below par, i.e., at a discount, otherwise shareholders would be unlikely to subscribe.
issue of share at discount requirement
Issue of Share at discount (Requirement)

CURRENT PROCEDURES

Public companies are allowed to issue shares at a discount from par under section 84 of the Companies Ordinance 1984 but only after fulfilling some legal requirements. There are two scenarios:

  • If the discount rate is 10% of par or less,
    • then issuer first takes the approval from its shareholders by means of a special resolution in a general meeting
    • and then takes the approval from Securities & Exchange Commission of Pakistan (SECP)..
contd
Contd….
  • If the discount rate is more than 10% of par,

a) then the issuer first takes the approval from SECP

    • and then from its shareholders.
issuance of share
Issuance of Share

When company issues the shares, it has to fix the price of per share.

  • If the face value and issue price per share will equal, then it is called that shares have been issued at par. Issue price will not always equal to the face value per share.
  • If issue price is more than face value, then shares will be issue at premium.
  • If issue price is less than face value, then shares will issue at discount.
issuance of share at par
Issuance of Share at Par
  • To understand the issue of shares at par, we have to understand the face value of  per share.
  • Concept of face value came from currency.
    • In the beginning of time, we used Gold Currency. Because Gold was cheap. Market fixed the price of Gold and printed Rs. 1 on the Gold Coin. It was its face value, but after sometime, Gold's price increased. Same 1Rs. Gold Coin's value became 200 Rs. current paper currency. Still face value of 1 Rs. Gold coin is Rs. 1 but market value is different
explanation
Explanation
  • Like this, each share's face value is fixed by company and other outside factors.
  • When it fixes, a company can issue his share on this price or less than this price or more than this price.
  • If face value per share and issue price per share will equal then it will be issue of share at par.
slide10

In accounting treatment, when we see par value.

    • For example, it is Rs.100. Now, classify this money in application money, allotment money and call money.
      • For example, we have to take Rs.50 at the time of application. It will be application money.
      • If we have to take Rs.25 per share at the time of allotment of shares, we will say it allotment money per share.
      • If we have to take balance in call, then balance Rs.25 per share will be call money.
issue of shares
Issue of Shares
  • When shares are issued at an amount less than its face value is called issuance of shares at “discount.”
  • When shares are issued at an amount more than its face value is called issuance of share at “premium.”
  • Issuance of share at premium is the most prevalent mode of issue.
share premium account
Share premium account
  • When shares are issued at premium an amount equal to premium shall be transformed to an account “share premium account”.

Procedure of issuance of shares at premium:

  • Check authorized capital, if insufficient, increase it.
  • Convene the board meeting and approve the purpose of share of issue.
  • In case of listed entity, intimate to stock exchange, about the particulars of issue after board meeting.
share premium account1
Share premium account

Procedure of issuance of shares at premium:

  • File form 23 with in 30 days.
  • File form 2 with in 30 days of allotment.
  • Pass special resolution and forward the proceeding to stock exchange
conditions for issuance of shares at discount
Conditions for issuance of shares at discount
  • Discount can be authorized by resolution passed in general meeting.
  • It must be sanctioned by the commission.
  • The resolution must specify the maximum rate of discount at which the shares are to be issued.
  • At least one year should have been elapsed from the date of commencement of business.
conditions for issuance of share at discount
Conditions for issuance of share at discount
  • It is issued with in 60 days from date of sanction of the commission. The commission may extend this period.
  • Every prospectus and balance sheet issued after such issue must contain the particulars of discount allowed on issue of shares.
  • Issue of shares at discount shall not be deemed to be reduction of share capital
offering shares for outstanding loan
Offering shares for outstanding loan

Following conditions should be fulfilled for it:

  • The loan should be from a scheduled bank or financial institution.
  • In case of granting option to convert, the term of loan should not be less than three years.
right issue of share
Right Issue of Share

What is a rights issue of shares?

  • A rights issue is when a company issues its existing shareholders a right to buy additional shares in the company.
    • The company will offer the shareholder a specific number of shares at a specific price.
    • The company will also set a time limit for the shareholder to buy the shares.
    • The shares are often offered at a discounted price to encourage existing shareholders to take the company up on their offer.
the right issue
The right issue
  • Simply when directors decide to increase the capital of the company by issue of further shares, such share shall be first offered to the existing shareholders in proportion to their existing shareholdings.
reasons for a rights issue of shares
Reasons for a rights issue of shares
  • A company will offer more shares to its shareholders to raise extra money for the company.
  • Companies with a poor cash flow will often use a rights issue to increase cash flow and pay off existing debts.
  • Rights issues however are sometimes issued by companies with healthy balance sheets in order to fund research and development projects or to purchase new companies.
reasons for a rights issue of shares1
Reasons for a rights issue of shares
  • Rights issue involves shares being offered to existing shareholders at a discount to the current trading price, for the purpose of raising funds for the company.
  • In other words, we can say that rights issue gives shareholders a chance to increase their exposure to the stock at a discounted price.
reasons for a rights issue of shares2
Reasons for a rights issue of shares
  • Rights issue is a way for companies to raise capital.
    • Capital is raised when investors pay for the new shares that are being issued.
    • Companies can use the raised capital
      • to acquire assets,
      • make a take-over,
      • repay debts
      • or save themselves from bankruptcies.
caution
Caution
  • Discounted shares issued by a company can be tempting but it is important to find out first the reason for the rights issue of shares.
    • A company, for example, may be using the rights issue as a quick cash fix to pay off debts masking the real reason for the company’s cash flow failing such as bad leadership.
    • Caution is advised when offered with a rights issue.
employee stock option scheme exception in right issue
Employee stock option scheme(exception in right issue)

A public company can further raise its capital without issue of right shares

  • By passing special resolution and after the approval of the Federal Government
  • Or can offer a certain percentage of its shares to its employees under the employees stock option scheme.
share certificate
Share Certificate

Definition of 'Share Certificate'

A share certificate is a written document signed on behalf of a corporation, and serves as legal proof of ownership of the number of shares indicated.Also referred to as a "stock certificate".

share certificate1
Share certificate
  • A share certificate is a document issued under the common seal of the company.
  • A share certificate is a document of title of the shares held in a company.
  • It is the prima facie evidence of the title of the member to the shares.
share certificate2
Share certificate

It includes:

  • Name and address of the holder
  • The number of shares held by him
  • Their distinctive numbers
  • The amount paid-up thereon
duplicate share certificate
Duplicate share certificate
  • Duplicate share certificate shall be issued with in 45 days from the date of application after inquiry that original share certificate has been lost.
  • If a company is unable to issue duplicate certificates it shall notify this fact with in 30 days,
  • The company shall not charge fee exceeding the sum prescribed and the actual expenses incurred.
commission defined
Commission defined
  • A commission is a fee paid to an agent as compensation for executing a transaction. It is calculated either as a percentage of the transaction value or as a flat fee.
commission on sales of shares and debentures
Commission on sales of shares and Debentures

Conditions:

  • The payment of such commission is authorized by the articles.
  • Commissions does not exceed the rate fixed by the commission.
commission on sales of shares and debentures1
Commission on sales of shares and Debentures

Conditions:

  • Amount and rate of commission is disclosed in the prospectus or statement in lieu of prospectus.
  • The number of shares on which commission is payable should be disclosed in the prospectus or statement in lieu of prospectus.
  • Thank you
coming up
Coming up
  • Reduction of capital under section 96.
  • Reduction of capital and objecting Creditors
  • Liability of members in respect of reduced share.
  • Prohibition on purchase of share.
  • Purchase of its own shares by a listed company.