How to Issue Shares?

By David Gass

The Companies Act and its own constitution bind a company when it comes to matters related to managing its affairs. The power of issuing shares is vested with a company’s board of directors. However, these powers are restricted to the proviso of the Companies Act and the company’s constitution. The board normally determines the amount of money that it is required to raise through the issue of shares; the time and the person to whom the shares are to be issued are other related factors.

If you are keen to know more about how to issue shares, then it is pertinent to know that your company has to be registered under the Companies Act first. Thereafter, the persons, who have been specified in the registration application as shareholders, are issued the number of shares mentioned in the application. To acquire those shares, the shareholders pay money to the company at the rate per share agreed upon.

Notifying the Registrar of Companies

It is mandatory, as per law, to notify the Registrar of Companies the act of shares issued to the shareholders. The law requires a company to notify the concerned office, in the prescribed form, within ten working days of the issue of shares. The failure to comply with this legal requirement can attract penalty for each director of the erring company. The law is very firm on this.

Obtaining Shareholders’ Approval

Another important point that may crop up on issuing shares is the presence of certain restrictive clauses in the company’s constitution. The company could find itself in a bind on account of the restrictive clauses that prevent it from issuing shares. In that case, the board of directors can approach the shareholders and seek their approval to make the necessary amendments so that shares can be issued. A 75% percent shareholder majority is required to pass a special resolution to this effect.

Pre-emptive Rights of Current Shareholders

Current shareholders of a company have pre-emptive rights. These rights give them priority over non-existing shareholders of exercising the option of purchasing newly issued shares. The shares can only be offered to non-existing shareholders when the current shareholders turn down the purchase offer. There might be instances where shares are offered to non-existing shareholders on favorable terms. In such cases, the shares have first to be offered to the existing shareholders on those favorable terms, though they had earlier declined the original offer.

Payment for Shares

The law does not require the existing shareholders to pay anything in return for the new shares, if the constitution of the company is silent on the matter. The shareholders will have to pay if the constitution says so. The payment of consideration (value of shares) can be in the shape of cash, future services, promissory notes, or other means as defined in the constitution. However, the board of directors determines the consideration before the shares are offered.

The various softwares that are available in the market provide the necessary documents related to issue of shares and other related activities. These softwares are reasonably priced and provide with all required information and help required.

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