A company can issue shares for consideration other than cash. Common examples include issuing shares in return for property, assets the company needs or (e.g. in a takeover) shares in another company.
When an asset is acquired by a company, the payment of asset price can be made by the issue of shares or in cash to the vendor. Moreover, when shares are given against the purchase price, it is known as ‘Issue of shares for consideration other than cash’. In this case, shares are not open to the general public.
When shares are issued against the purchase price, it is called ‘Issue of shares for consideration other than cash’. In other words cash is not received by the company against such shares. In this case shares are not issued to the public in general.
Can we do right issue for consideration other than cash?
Any other person: A company can also issue the right shares to any other person by passing a Special Resolution either for cash or for consideration other than cash. However, the registered valuer determines the price of such shares by making a valuation report subject to prescribed conditions.
Where shares are allotted for non-cash consideration, a return must be made to the Companies Registration Office of the contract in writing constituting the title to the shares or particulars of it. There are restrictions on public companies (not private companies) in the issue of shares, other than for cash.
What do you mean by issue of debenture for consideration other than cash?
When a company purchase some assets it is supposed to pay the purchase consideration in cash but sometimes due to lack of sufficient fund company may issue debenture for the payment of such purchase consideration. This is known as issue of debenture for consideration other than cash.
What is Section 62 of Companies Act 2013?
As per Section 62(1) of the Companies act, 2013 if the Company decides to issue fresh shares, these should be offered to existing shareholders in proportion to existing persons who are holders of equity shares. ‘Right Issue’ means offering shares to existing members in proportion to their existing share holding.
– Stocks shall not be issued for a consideration less than the par or issued price thereof.
It may offer the fully paid equity shares to the vendor for the value of the assets. It can also issue shares to the promoters or the lawyers for rendering services in the formation of the company. It needs to show the ‘shares issued for consideration other than cash’ separately under the heading ‘Share Capital’.
Capital reserve A/c.
When a company issues shares upon incorporation or through an initial or secondary issuance, shareholders are required to pay a set amount for those shares. Once the company has received the full amount from shareholders, the shares become fully paid shares.
Do we need shareholders’ approval to issue private company shares? Many SME and start-up companies have the default model articles of association and only one class of ordinary shares. If so, the directors can issue new shares without requiring prior authority from the shareholders.
When a company needs additional capital and keeps the voting rights of the existing shareholders proportionately balanced, the company issues Rights shares.
(1) A company can issue secured as well as unsecured debentures. It can also issue non-convertible debentures or debentures which can be converted fully or partly into equity shares. (2) The Board of Directors of a company have the authority to issue debentures. All debentures are redeemable i.e, have to be repaid.
A company may acquire its own shares if authorised to do so by its Memorandum and Articles of Incorporation (“Memorandum and Articles”). The terms and manner of the acquisition will also be determined by any specific stipulations of the Memorandum and Articles and the terms of issue of the shares concerned.
Although a company cannot borrow to finance a share buyback, it may borrow for other purposes. If a company wishes to borrow funds at a time when a share buyback is proposed or has recently been completed, it must be careful as to how this borrowing is documented and structured.
Unpaid share capital is where none of the monies due for an allotment of shares which have been issued has been paid. It is quite common in smaller companies for the share capital to be unpaid and remain due to the company indefinitely.