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What are the conditions for the issue of equity shares with differential rights?
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What are the conditions for the issue of equity shares with differenti...
Conditions for the issue of equity shares with differential rights : No company
limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions, namely :
(a) the articles of association of the company authorizes the issue of shares with differential rights;
(b) the issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders :
Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders
through postal ballot ;
(c) the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share capital including equity shares with differential rights issued at any point of time;
(d) the company having consistent track record of distributable profits for the last three years;
(e) the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is
decided to issue such shares;
(f) the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;
(g) the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government; Provided that a company may issue equity shares with differential rights upon
expiry of five years from the end of the financial Year in which such default was made good.”
(h) the company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956,
the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.
(a) the articles of association of the company authorizes the issue of shares with differential rights;
(b) the issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders :
Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders
through postal ballot ;
(c) the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share capital including equity shares with differential rights issued at any point of time;
(d) the company having consistent track record of distributable profits for the last three years;
(e) the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is
decided to issue such shares;
(f) the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;
(g) the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government; Provided that a company may issue equity shares with differential rights upon
expiry of five years from the end of the financial Year in which such default was made good.”
(h) the company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956,
the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.
Community Answer
What are the conditions for the issue of equity shares with differenti...
Conditions for the issue of equity shares with differential rights:
There are certain conditions that must be met for a company to issue equity shares with differential rights. These conditions are aimed at ensuring transparency, fairness, and protection of minority shareholders. Let's explore these conditions in detail:
1. Approval by shareholders:
- The issuance of equity shares with differential rights must be approved by a special resolution passed by the shareholders of the company.
- The company must provide detailed information about the proposed differential rights to the shareholders, allowing them to make an informed decision.
2. Articles of Association:
- The articles of association of the company must authorize the issuance of equity shares with differential rights.
- If the articles of association do not explicitly mention this provision, an amendment to the articles must be made before the issuance can take place.
3. Disclosures:
- The company is required to disclose all relevant details regarding the differential rights, such as the nature of the rights, the voting power attached to each class of shares, the restrictions on transferability, etc.
- These disclosures are important for potential investors to assess the risks and benefits associated with the differential rights.
4. Consistency with SEBI regulations:
- The issuance of equity shares with differential rights must be in compliance with the regulations set by the Securities and Exchange Board of India (SEBI).
- SEBI has laid down specific guidelines and conditions regarding the issuance of such shares, including the minimum price at which they can be issued, the lock-in period for promoters, etc.
5. Protection of minority shareholders:
- The rights attached to the equity shares with differential rights should not be prejudicial to the interests of the existing shareholders, especially minority shareholders.
- The differential rights should not result in a disproportionate concentration of power or control in the hands of a few shareholders.
6. Non-convertibility:
- Equity shares with differential rights cannot be converted into any other class of shares.
- This condition ensures that the rights and privileges attached to these shares remain consistent throughout their existence.
Conclusion:
Issuing equity shares with differential rights is subject to several conditions to safeguard the interests of shareholders and maintain transparency. Approval by shareholders, compliance with SEBI regulations, protection of minority shareholders, and disclosure of relevant information are crucial aspects to be considered before issuing such shares. These conditions aim to strike a balance between the company's need for capital and the protection of shareholders' rights.
There are certain conditions that must be met for a company to issue equity shares with differential rights. These conditions are aimed at ensuring transparency, fairness, and protection of minority shareholders. Let's explore these conditions in detail:
1. Approval by shareholders:
- The issuance of equity shares with differential rights must be approved by a special resolution passed by the shareholders of the company.
- The company must provide detailed information about the proposed differential rights to the shareholders, allowing them to make an informed decision.
2. Articles of Association:
- The articles of association of the company must authorize the issuance of equity shares with differential rights.
- If the articles of association do not explicitly mention this provision, an amendment to the articles must be made before the issuance can take place.
3. Disclosures:
- The company is required to disclose all relevant details regarding the differential rights, such as the nature of the rights, the voting power attached to each class of shares, the restrictions on transferability, etc.
- These disclosures are important for potential investors to assess the risks and benefits associated with the differential rights.
4. Consistency with SEBI regulations:
- The issuance of equity shares with differential rights must be in compliance with the regulations set by the Securities and Exchange Board of India (SEBI).
- SEBI has laid down specific guidelines and conditions regarding the issuance of such shares, including the minimum price at which they can be issued, the lock-in period for promoters, etc.
5. Protection of minority shareholders:
- The rights attached to the equity shares with differential rights should not be prejudicial to the interests of the existing shareholders, especially minority shareholders.
- The differential rights should not result in a disproportionate concentration of power or control in the hands of a few shareholders.
6. Non-convertibility:
- Equity shares with differential rights cannot be converted into any other class of shares.
- This condition ensures that the rights and privileges attached to these shares remain consistent throughout their existence.
Conclusion:
Issuing equity shares with differential rights is subject to several conditions to safeguard the interests of shareholders and maintain transparency. Approval by shareholders, compliance with SEBI regulations, protection of minority shareholders, and disclosure of relevant information are crucial aspects to be considered before issuing such shares. These conditions aim to strike a balance between the company's need for capital and the protection of shareholders' rights.
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What are the conditions for the issue of equity shares with differential rights?
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What are the conditions for the issue of equity shares with differential rights? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What are the conditions for the issue of equity shares with differential rights? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What are the conditions for the issue of equity shares with differential rights?.
What are the conditions for the issue of equity shares with differential rights? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What are the conditions for the issue of equity shares with differential rights? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What are the conditions for the issue of equity shares with differential rights?.
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